OURSES OF STUDY IN 
( CORPORATION FINANCE 
AND INVESTMENT 



'VESTMENT BANKERS ASSOCIATION 
OF AMERICA 




Book ■ 1 1- 

JO 



COEffilGKT DEPOSm 



COURSES OF STUDY 

IN CORPORATION FINANCE 

AND INVESTMENT 



Courses of Study 

in 

Corporation Finance 

and Investment 



New York 
Doubleday, Page & Company 

for 

Investment Bankers Association 

of America 

1917 









Copyright, 1917, by 
Investment Bankers Association of America 

All rights reserved, including that of 

translation into foreign languages, 

including the Scandinavian 



©CIA477621 

"he- j 



INVESTMENT BANKERS ASSOCIATION 
OF AMERICA 

Education Committee 

Lawrence Chamberlain, Chairman 

E. W- Bulkley A. W. Bullard 

Preparation of material by 
Hastings Lyon 



Neither the Investment Bankers 
Association of America nor its 
Education Committee assumes 
responsibility for any statements 
made in these outlines or in any 
books referred to in the outlines. 
The books were selected with 
regard to their general availability, 
and without prejudice to any other 
books treating of the same subjects. 



PREFATORY 

About two years ago at the written request of 
several members of the Investment Bankers 
Association the Board of Governors appointed 
a Special Committee consisting of Lawrence 
Chamberlain, Chairman, E. W. Bulkley and 
A. W. Bullard, to consider the expediency of 
compiling and printing a text or texts of subject 
matter relating to the business of investment 
banking with the primary idea of assisting in 
the work of educating the relatively inexperi- 
enced bond salesmen in those things which can 
be taught from books. 

As the work of the Committee progressed 
two things became evident: first, that the writ- 
ing and printing of a series of text books would 
be too large an undertaking for this organiza- 
tion — at least at the present time — and second, 
that if it were desirable to undertake anything 
in the line of educational work the scope and 
purpose should be broadened to include sug- 
gestion and guidance to college and university 
instructors in finance. 

Accordingly, the Committee so reported at the 
Convention held in October, 1916, at Cincinnati. 

By an almost unanimous vote the members 

[vii] 



of the Association in Convention requested a 
continuance of the work of the Committee 
and at a subsequent meeting of the Board of 
Governors, at which a comprehensive report 
with exhibits was presented to the Board, it 
authorized the Committee in its discretion to 
publish the material submitted in such form 
and under such arrangements as seemed desir- 
able. The advent of America into the war and 
the necessary absence of the members of this 
Committee from their offices and regular duties 
in furtherance of the flotations of Liberty Bonds 
has delayed somewhat the completion of its 
work which otherwise would have been ready 
for the members in its entirety at the conven- 
tion in Baltimore in November, 1917. The 
total plan of the Committee embraced the pub- 
lication of outlines of six courses, a bibliography 
and a statement of the legal principles of a 
mortgage. The items referred to are as fol- 
lows: (1) An outline of a course in Corpora- 
tion Finance; (2) An outline of a course in 
Investment; (3) An outline of a course in 
Railroad Securities; (4) An outline of a course 
in Public Service Corporation Securities; (5) 
An outline of a course in Government and 
Municipal Securities; (6) An outline of a course 
on the Practice and Principles of the Stock 
Exchange; (7) A list of books on Investment 
Finance; (8) A statement of the Legal Prin- 
ciples of a Mortgage. 

All of this work has been reduced to something 
like final form but since the Committee desired 

[ viii 1 



its labors to be supplemented and revised by a 
number of specialists in the several topics 
treated, and since returns from all the special- 
ists are not yet at hand, it has seemed best 
to prepare for publication at the time of the 
convention in Baltimore merely the first volume 
containing the outlines of the two general 
courses in Corporation Finance and in Invest- 
ment which comprise this book. With this 
volume in the hands of all of our members and 
of many instructors in finance throughout the 
country it will be possible for the Committee 
to benefit by the frank and detailed criticism 
it hopes to receive so that the subsequent 
volumes may obtain the benefit of business 
practice and classroom experience. 

The Committee thought that these outlines 
should be in considerable detail and fully an- 
notated with references to available works in 
finance, so that even a man working without 
any personal assistance to get some knowledge 
of the subject might find careful direction for 
his endeavor. The Committee also thought 
that these outlines would furnish useful guides 
to any one, whether a bond house manager or 
a university professor, seeking to give instruc- 
tion in those-aspects of finance in which this 
Association is especially interested; and that 
they would help to standardize and establish 
on a sound basis a statement of the principles of 
finance without knowledge of which legislation 
affecting this form of business activity is likely 
to injure the welfare of the country. 

[ix] 



Perhaps, also, the outlines will serve as an 
indication to the bond man of the amount of 
knowledge of principles and general informa- 
tion, as distinct from information about par- 
ticular securities, that he ought to have as a 
basis for his work. The Committee has no 
thought that the study indicated will in itself 
produce competent bond men. The Committee 
is concerned only with that part of the bond 
man's equipment, whether it be of great or 
little importance, which consists of his gen- 
eral knowledge of investment. 

HOW TO USE THE OUTLINES 

These outlines have been prepared as an aid 
to the study of that branch of fiscal operations 
which has to do with financing fixed capital. 
It might properly be termed investment finance. 
The principles which should underlie these opera- 
tions, however, are in the process of formula- 
tion, and those which have been determined 
are only incompletely stated in the books. 
Even the methods of this kind of finance have 
had a very limited description in printed form. 
The other large branch of fiscal affairs which 
has to do with financing circulating capital or 
"quick" assets (that is to say commercial 
banking), has for a much longer period been a 
subject for study and writing, and however much 
remains to be done to give it an adequate writ- 
ten treatment, the student in this branch has a 
comparatively well formulated and well des- 

[*] 



cribed science and art. It is the aim of these 
outlines to enable the man seeking a knowledge 
of investment finance to use existing books as 
advantageously as possible. They present a 
comprehensive scheme of study as far as the 
material is available. They have been pre- 
pared with the idea of bringing to his attention 
existing material in an orderly manner to de- 
velop the subject in a systematic way. 

If the man who is undertaking to study the 
subject is working alone, he should purchase at 
least several of the books most frequently re- 
ferred to. If he can get them all so much the 
better. The headings and sub-headings, the 
brief suggestive word or two in the outlines, 
indicate those matters in which he should be 
especially informed. The general references 
at the beginning of each numbered topic in- 
dicate sources of information generally for those 
matters suggested in the outline under that 
topic. Frequently after a heading or sub- 
heading of the outline the student will find a 
special reference. This reference already may 
have been included in one of the general refer- 
ences at the beginning of the topic, or it may 
be an entirely new reference selected from some 
book or from some part of a book in which there 
is not a general treatment of the entire topic. 
The special reference may refer only to the 
single heading or sub-heading immediately pre- 
ceding it, or it may include several such head- 
ings or sub-headings between it and the next 
preceding reference. 

[xi] 



Enough has been said already to indicate 
that these outlines are for the student rather 
than for the merely casual or even somewhat 
earnest reader. One who preferred, however, 
to take a book and read it through • consecu- 
tively before taking up another book to read 
in the same way could advantageously use the 
outlines to test the knowledge he has gained 
from such reading. By looking through the 
outline he can see if he is informed on each 
heading, and how fully, and if he is not in- 
formed, how he can remedy his deficiency. 

This suggests the use of the outlines by the 
man who has had experience in this branch of 
finance. It may be a waste of time for such a 
man to read all the material indicated. Some 
parts of the subject he may know much more 
thoroughly than any printed matter presents 
it. Such a man can go through the outlines 
and passing over that with which he is familiar 
round out his knowledge by doing the reading 
on those topics on which he is relatively unin- 
formed. 

An investment banking house interested in 
offering facilities for its men to increase their 
information might at least establish a little 
office library containing all the books referred 
to, and any of its men so inclined could make 
systematic use of the books with the assistance 
of the outline. The house may wish to go 
further and organize a class for study under the 
guidance of one of its more experienced men. 
The leader of the class in that event will find a 

[xiij 



part of his work done for him through the 
systematic arrangement of the subject presented 
in the outline. The headings and sub-headings 
would afford him constantly the suggestion of 
the next matter to take up, and lead him on 
from subject to subject in an orderly manner. 
Almost any man of experience in a given field of 
work can talk interestingly and instructively 
about it if he has the suggestion of some specific 
subject out of the general field. 

University instructors will find in the out- 
lines a careful plan of courses of study in the 
subjects indicated which have been prepared 
under the supervision of men actively engaged 
in the financial work the courses present. 



£riu] 



OUTLINE OF A COURSE IN 
CORPORATION FINANCE 

This course assumes a general knowledge of 
the nature, organization, and management of 
corporations. The amount of information as- 
sumed is about that conveyed in Conyngton, 
"The Modern Corporation." It would be 
well to have read also Pratt's "Work of Wall 
Street," revised edition, and Sullivan's "Amer- 
ican Corporation." 



Full titles of books referred to will be found 

in the bibliography at the end of 

the outline 



DIVISION I 

INTRODUCTORY TOPICS 

TOPIC I 

Corporation Finance in Its Relation to the 

General Subjects of Economics and 

Accounting 

This introductory topic forms the connecting 
link between general economics and business 
practice as presented in this course. A man- 
ager or other person in charge of the course can 
utilize the first session, for which the men have 
not had an opportunity for preparation, by giv- 
ing a lecture covering this introductory matter. 
The bond man reading by himself could cover 
the ground by the references given. It would 
not be worth his while, however, to delay 
getting on. He had better get ahead and 
come back to these general references as he 
has opportunity. Some reference books in 
general economics are: 

"Elementary Principles of Economics," by 
Irving Fisher. 

" Principles of Economics," by Edwin R. A. 
Seligman. 

m 



" Principles of Economics," by F. W. Taus- 
sig. 

The subject of Corporation Finance is closely 
associated with the subjects of Accounting and 
Corporation Law. The student would be 
helped greatly by some knowledge of both 
subjects. As suggestions for texts in account- 
ing: 

Cole: "Accounts, Their Construction and 
Interpretation." 

"Modern Accounting," by Henry Rand Hat- 
field. 

"Auditing Theory and Practice," by R. H. 
Montgomery. 

"Net Worth and the Balance Sheet," by 
Herbert G. Stockwell. 

For a book reference on the law of the sub- 
ject, probably the most useful for a student 
would be: 

Machen: "Modern Law of Corporations." 

SUBJECT OF THE COURSE 

This course discusses the financing of the 
relatively fixed capital of private business cor- 
porations. 

Capital is wealth used in or useful for pro- 
duction. 

CIRCULATING AND FIXED CAPITAL 

Circulating capital is capital in the course of 
consumption. This is an economic term. The 
approximate business term is working capital. 

[4] 



Fixed capital is that capital which is rela- 
tively permanent. 

ACCOUNTING IN RELATION TO: 

Working (circulating) capital. 

Quick assets. 

Quick liabilities. 

Lough, 105-130, 502-507. 
Fixed capital. 

Fixed assets. 
Permanent or long term liabilities. 

The following balance sheet of a manufac- 
turing concern shows the accounting distinc- 
tion between working (circulating) and fixed 
capital. The heavy type indicates the fixed 
capital asset and the italics indicate the liability 
items by which they were financed. The light 
type indicates the circulating capital assets and 
the liability items by which they were financed. 

ASSETS 
PLANT $5,000,000 

Merchandise and material inventory . 750,000 

Bills and accounts receivable 500,000 

Cash 250,000 

$6,500,000 

LIABILITIES 

Common Stock $3,000,000 

Preferred Stock 1,000,000 

Mortgage Bonds 5% 1,000,000 

Bills and accounts payable 250,000 

Surplus 1,250,000 

$6,500,000 

[5] 



THE INCOME ACCOUNT OF A MANUFACTURING CONCERN IN 
ITS ECONOMIC ASPECTS 

The wealth produced. 
The working (circulating) 
capital, the raw material 
increasing in value through 
the application of labor 
with the use of capital. 
The share of labor in the 
product. 



The share of capital in 
the product. 



Goods billed 


$3,500,000 


Cost of material 


1,250,000 


Maintenance, 




taxes and 




other current 




costs of 




production 
Labor . 


250,000 


1,250,000 


Cost, other thar 


1 


cost of capital 


$2,750,000 


Net. . . 


750,000 


Interest and Dis 




count 


125,000 


Available for Div- 




idends 


$ 625,000 



FINANCE IN RELATION TO: 

Working (circulating) Capital — is the field 
of Commercial Banking. 

Fixed Capital — is the field of Corporation Fi- 
nance and the subject of this course. 



Question 1. The directors of a cotton mill 
corporation want to borrow $200,000, to 
buy bales of cotton. Would you consider 
that such financing came under the head 
of Corporation Finance as this syllabus has 
indicated the subject? 

Question 2. The directors of the same cor- 
poration want to erect an addition to the plant 
that will cost $250,000. Would the provid- 

[6] 



ing of funds for this purpose properly form 
one of the considerations of this course? 

Question 3. From what sources could the cor- 
poration procure the funds called for by ques- 
tion 2 ? 

Question 4. How would the transaction be 
represented in each case in the Balance 
Sheet? 



[71 



TOPIC II 
Capitalization and the Investment Contract 

The term "Investment Contract" is used 
to indicate the terms under which an investor 
commits his funds to an enterprise. The rights 
and obligations created, whether represented 
by a share of stock, a bond or other security, 
constitute the Investment Contract. 
Lyon I, 1-49. 
Chamberlain y 72-99. 
Mead, 44-59. 

Risk, Income, Control, as incidents of the 
Investment Contract. 

Lyon I, 4-14. 

The Proprietor. 
Lyon I, 50-53- 

The Creditor: 
Unsecured. 
Secured. 

The Investment Contract as to the size of the 
commitment (denomination of the security). 

[8] 



Corporate securities as meeting the financial 
ability of the capitalist (investor). 
Lyon I, 10. 

The representative or fungible quality of 
corporate securities, i. e., one share or obliga- 
tion of a given issue just like another, facilitat- 
ing market transactions. 
Emery, "Speculation on the Stock and Produce 

Exchanges of the United States," pp. 38, 

39> 74. 

THE INVESTMENT CONTRACT OF THE 
STOCKHOLDER 

Common stock. 
Lyon I, 12. 
Lough, 70. 

Preferred stock: 
Cumulative. 
Non-cumulative. 
As to Assets. 
Special agreements. 

Gerstenberg, 54-110. 
Lyon I & II, 15. 
Ripley, 95-100. 
Lough, 71-82. 

Participating stock. 
Lyon I, 18. 

Convertible stock. 
Lyon I, 20. 

[9] 



Redeemable stock. 
Lyon I, 25. 

Some special stipulations of the Investment 
Contract of Stockholders. 

Non-voting. 
Lyon I, 28. 

Vetoing. 
Lyon I, 23-24. 

Conditional voting. 
Lyon I, 28. 

Cumulative voting. 
Lough, 95-99- 

THE INVESTMENT CONTRACT OF THE CREDITOR 

The unsecured creditor: Notes (Financial 
notes to be distinguished from commercial 
paper in that they are issued to finance rela- 
tively fixed capital). 
Lyon 1, 184, bottom. 
Chamberlain, 75. 
Ripley, 164-170. 
Lough, 131-141. 

Debentures. 
Lyon I, 36-38. 
Ripley, 141. 
Lough, 149-154- 

Equal security clause. 
Lyon II, 218. 

[10] 



The unsecured creditor. 
Lyon I, 74. 

Mortgage bonds. 
Lyon I, 36. 

Income bonds. 
Zycm I, 39. 
Chamberlain, 75-76. 
i?z>/0>, 139. 
Lough, 154-158. 

Convertible bonds. 

Lyon I, 43. 

Ripley, 115. 

Gerstenberg, 324-335 (reprint of special cir- 
cular). 

Lough, 158-160. 

Redeemable bonds. 
Lyon I, 181. 

Question 1. How nearly like a bond can a 
share of stock be made? Indicate all the 
provisions you would put in a stock certi- 
ficate to make it as nearly like a bond as 
possible. 
Question 2. A corporation is capitalized and 
has earnings as follows: 

$2,000,000 Common stock. 
$1,000,000 6% non-cumulative preferred 
stock. 

Earnings available for dividends, $80,000. 

[11] 



What criticism of the Investment Contract 
would you make from the standpoint of the 
preferred stockholder? 

Question 3. A corporation is capitalized and 
has earnings as follows: 

Common stock .... #1,000,000 
Preferred, 6% cumulative . 1,000,000 
Debenture bonds, 5% . . 1,000,000 

Net earnings 210,000 

Assume that the present investment in the 
property amounts to #3,000,000. The direc- 
tors are now proposing to increase the investment 
in the enterprise by selling at par $3,000,000 
of six per cent, bonds secured by a mortgage 
on all the property of the company. Assume 
that the corporation will earn at the same rate 
on the additional as on the existing investment. 
What effect will the new bond issue have on 
the common and preferred stock and on the 
debentures? (Work this out specifically to 
show the result in figures.) 

Assume that subsequently the corporation 
cannot earn more than four per cent, on the 
total investment. What is the result on all 
classes of securities? What would the result 
have been if the new bonds had not been issued? 



[12] 



TOPIC III 

Capitalization and the Investment Contract 
The Investment Contract of a Mortgage 

FORM OF ORDINARY REAL ESTATE MORTGAGE 

Gerstenbergj 176. 

It is impossible to get any knowledge of Cor- 
poration Finance without a clear understand- 
ing of the nature of a mortgage and the rela- 
tionships of the parties to it. The compiler 
of this syllabus knows from experience that 
many, even most, young men just beginning in 
business (and some older men) do not have any 
precise knowledge of the rights and liabilities 
involved in a mortgage. It is not desirable 
that the layman studying finance should seek 
the kind of an understanding of the field that 
the lawyer needs, but he must know the boun- 
dary points that determine the outline of the 
field. More than any other Investment Con- 
tract, the mortgage has influenced the develop- 
ment of methods of Corporation Finance. The 
corporate mortgage is only a development from 
the fundamental mortgage principles, and a 
study of a simple mortgage of a single piece of 

[13] 



real estate by an individual mortgagor to an 
individual mortgagee is the quickest way to 
get at the heart of the subject of corporate 
mortgage, mortgage bonds, the rights of bond- 
holders, etc. 

A mortgage is a conveyance (sometimes 
only a pledge) of the title to property to secure 
the repayment of a debt. The borrower re- 
tains possession of the property so long as he 
fulfils his obligation, and on completing his 
obligation he gets the title back. If the bor- 
rower fails to meet his obligations the lender 
may have the property sold to satisfy his claim. 

The Debt — usually evidenced by: 
Note or 
Bond, 

(Difference between note and bond. Bond an 
instrument under seal.) 

Effect of seal. The corporate seal as a seal 
to create a "sealed instrument" and as a means 
of authenticating the corporate signature. 

Secured by Mortgage : 

Mortgagor — the borrower. 

Mortgagee — the lender. 

Mortgaged or pledged property. 

Title. 

Possession. 

Covenants of the mortgagor (what the 
borrower agrees to do.) 

[14] 



Defaults (Failure of the mortgagor to 
keep his agreements). 

Remedies of the mortgagee. 

Release of the mortgage. 

Transfer of the debt : 

(The lender sells the note or bond to 
another who now becomes the credi- 
tor of the mortgagee.) 

Assignment of the mortgage: 

(The lender selling the note or bond 
transfers the mortgage claim against 
the property to the buyer of the note 
or bond.) 

The mortgagor wants to sell the property: 
(Sale may be free from the mortgage in 
which event the mortgagor must pay 
the debt.) 

Sale subject to the mortgage: 

If purchaser does not assume the mort- 
gage, the property remains liable, but 
the purchaser does not become per- 
sonally liable. If purchaser assumes 
the mortgage he becomes the prin- 
cipal debtor, and the seller remains 
liable as guarantor, unless released 
by the mortgagee. 

Foreclosure and sale. 

Deficiency judgment. 

[iSl 



THE CORPORATE MORTGAGE 

To trustee for benefit of bondholders. 

Nature of a "trust." Trustee holds legal 
right but bondholders the beneficial interest. 

Why to a trustee: 

Otherwise would have to make each 
person lending funds one of the mortgagees 
with difficulties of transferring the security. 

Question I. A mortgages his house to B to 
secure a debt of $io,ooo. A fails to pay the 
debt and B forecloses. On the foreclosure 
sale the house is sold for #11,000. Who 
gets the extra #1,000? 

Question 2. Assume that on the foreclosure 
sale the house sold for only $9,000. What 
are B's rights? 

Question 3. A sells the house to C who takes 
it subject to, and assumes, the mortgage. A 
does not, however, get a release from B. C 
fails to pay the mortgage. On foreclosure 
the house sells for $8,000. C has only $1,000 
of assets. What are B's rights? 



[i6[ 



TOPIC IV 
The Basis or True Income Return of Bonds 

Chamberlain, 403-415, 426-429. 

The matter of the basis or so-called true in- 
come return on bonds often puzzles the beginner. 
It is well for him to become familiar early with 
the general principles involved so that he may 
readily grasp the ordinary discussions of the 
subject of finance which assume a knowledge 
of these concepts. An instructor might well 
convey in a lecture all the information re- 
quired for this early preliminary consideration 
of the subject. 

DISCOUNT BOND 

A bond is an obligation carrying interest. 
It may, however, be sold at a discount. 

Chamberlain, 407. 

We have, therefore, in arriving at the real 
amount paid or received for the use of money 
in the case of a bond sold at less than par, a 
combination of the principles of interest and 
discount, as: 

[17] 



$iooo. 5% io-year bond at 95. 

Principal loaned, $950. 

Annual return received from coupons, 

£50. ^ 
This (t. e., $50 return on $950) is 

equivalent to an interest rate of . 5«z6% 

Amount returned to lender at end of 

10 years $1000.00 

But amount loaned 950.00 

Amount of discount for the 10-year 

period . 50.00 

A correct calculation of the annual 

value of this would show it equi- 
valent to a per annum return of 

approximately iVcr of 1 per cent. _»37% 

5.63% 

It is not necessary for the student to go into 
the mathematical principles of what is vari- 
ously termed net yield, net return, or true in- 
come return, comprising the annual value of 
interest and compound discount, involved in 
this computation until he gets into the course in 
Investments. 

PREMIUM BOND 

A bond may also be sold at a premium. 

Chamberlain, 409. 

$1000. 5% bond, running for 10 

years at the price of 105 . 

Principal loaned $1050.00 

Annual return received from coupons 

50-00 

This would be a per cent, of . 4-7^2 

But amount returned to lender at end 

of ten years is 1000.00 

[18] 



This is less than the principal loaned 

by . . . . . 50.00 

This amount of principal has been paid 

back to the lender in the period. 
A correct mathematical calculation of 

the value of this shows that it is 

equivalent to an annual per cent, of 

approximately iWtr of 1 % . . . .387 

Which is the computed annual 

amount compounded at the basis 

rate of 4.375 required to amortize 

the premium leaving a net return 

of approximately 4-375 

THE USE OF THE BASIS BOOKS 

Chamberlain, 426-429. 

Question: Determine from a basis book the 
approximate yield of the following bonds: 





RATE OF INTEREST 




YEARS TO RUN 


PER CENT 


PRIC] 


2S 


S, 


95 


20 


3i 


85 


12 


4 


98 


IS 


6 


105 


18 


3 


103 


40 


4 


95 


5 


5, 


97 


3 


4* 


IOI 


35 


6 


95 


S° 


4 


92 



[19] 



DIVISION II 

CAPITALIZATION IN RELATION TO INCOME, ASSETS, 
STATE CONTROL 

TOPIC V 

Capitalization in Relation to the Income Ac- 
count, Part I 

Lyon I, 50-56. 
Lyon II, I75-I95- 
Chamberlain, 263, 279. 
Lough, 179-189. 

Unless the student is familiar with matters 
of accounting, the instructor will need to ex- 
plain fully the terms involved in the Income 
Account, and the student working by himself 
will need to feel that he has a sound under- 
standing of the Income Account. 

THE INCOME ACCOUNT 

For Railroads and Public Service Corpora- 
tions. 
Lyon II, 175-179. 

Gerstenberg, 166. 
Chamberlain, 263-275. 

[21] 



SHORT FORM 



LONGER FORM 



Gross Income- 



Operating- 



Net Income- 



Fixed Charges 



£ 



Surplus- 



Operating Revenue: 

(Classified according to 
kinds of business carried 
on) 
-Operation Expense: 

Conducting operations 
Maintenance 
■Net Operating Revenue 
^Taxes 
Income from other sources 
Deductions from Income 

(Interest \ ( Also requirements for amor- 
Rentals ) \ tization of discount and 
of debt 
Available for Dividends 
f Dividends 
( Surplus 

Contingent Liabilities 

Concealing additions to the 
capital account through 
maintenance 



Concealing additions to the capital account 
through maintenance. 
Lyon II, 182. 

Skimping maintenance. 

Lyon II, 182. 

Income account of an industrial corporation. 
Lyon II, 186. 
Gerstenbergy 662, 782. 

Shipments billed. 
Cost of shipments: 

Cost of materials. 

Cost of manufacturing and selling. 

[22] 



Maintenance. 
Net manufacturing profit. 
Other income. 
Total net. 

Interest and other fixed charges. 
Surplus for dividends. 

Question I. A corporation is making gross 
earnings of $756,000, net earnings of $325,000. 
What is the operating ratio ? 

Question 2. A corporation is earning gross 
$1,845,962. The operating ratio is 70 per 
cent. Fixed charges are $225,000. (a) 
What amount is available for dividends? 
(b) By what percentage are the earnings in 
excess of fixed charges ? 

Question 3. The corporation indicated in ques- 
tion 2 has $1,000,000 6 per cent, preferred 
and $1,000,000 common stock. What per 
cent, is it earning on the common ? 

Question 4. A corporation has the following 
Income Account: 

Gross $6,000,000 

Operating 4,000,000 

Net 2,000,000 

Its capitalization is: 

First mortgage 6 % bonds . . . $4,000,000 
General mortgage 4^% bonds . . 5,000,000 

Debenture 5% bonds 6,000,000 

Preferred stock 6% 7,000,000 

Common stock 10,000,000 

(a) What is the operating ratio? 

(b) What are the fixed charges? 

(c) How much is available for dividends on 
the preferred stock? 

[23] 



(d) What percentage is that on the pre- 
ferred ? 

(e) How many times the amount required 
for preferred dividends is it? 

(f) How much is available for dividends 
on the common stock? 

(h) How much is available for interest 
on the ist mortgage 6% bonds? How 
much required? 

(i) How much is available for interest on 
the general 4.5% bonds? How much re- 
quired ? 



[24] 



TOPIC VI 

Capitalization in Relation to the Income 
Account. Part II 

Lyon I, 56-82. 

Relative liability of different classes of busi- 
ness to variations in gross income. 
Railroads. 

Public Service Corporations. 
Industrials. 

Lyon, 56-68. 

Ripley, "Railroad Rates and Regulation/' has 
some interesting matter on this subject: 

Tendency of operating ratio to increase on 
declines in gross and effect on net income. 

Lyon, 56-68. 

Providing business capital by borrowing. 

Lyon, 50-53. 
Ripley, 105-109. 

Borrowing limited by liability of net earn- 
ings to fluctuate. 
Lyon, 54. 

[25] 



Earnings available for interest, and the mar- 
gin of safety. 

Lyon, 54. 
Chamberlain, 276. 

Question, The X. Y. corporation has a gross 
income during a prosperous business period 
of #1,000,000. Its operating ratio is 70 per 
cent. It is subject to a decline of 20 per 
cent, in its gross during a period of depres- 
sion and to an increase in the operating 
ratio at the same time of 5 per cent. Can it 
safely have a bond issue of #4,000,000 of 
5% bonds? 



[26] 



TOPIC VII 

Capitalization in Relation to Assets. Part I 

Lyon I, 83-107. 

Ripley, 227-237, 248-255. 

Mead, 145-158. 

Lough, 172-179, 189-200. 

The issuance of securities for a consideration 
not really worth the par of the securities. 

Sale of bonds at a discount is equivalent to 
borrowing at a higher interest rate, i. e., a 
combined interest and discount transaction in- 
volved in the borrowing. 

The issuance of stock when the considera- 
tion received does not really have a value equal 
to the par of the stock called stock watering. 

Common Objections to Stock Watering. 
Lyon I, 83-85. 

Fraud on the buyer. 

As a means of concealing excessive charges. 

Proper Purposes of Stock Watering. 
Lyon I, 86-107. 

[27] 



As a means of arriving at a bargain — satis- 
fying the various interests. 

Special use for this purpose in carrying out 
underwriting transactions. 

What advantages there may be to the cor- 
poration in financing with watered stock. 

Giving par value to stock illogical. 

Stock without par value the better way. 

A New York statute permits it (on minimum 
paid in of #5 a share) and Maine, Delaware. 

(New York Stock Transfer Tax — especially 
important because of transactions on N. Y. 
Stock Exchange — Stock without par value 
taxed 2 cents a share, the same as $100 shares.) 

See also statutes of Virginia, West Virginia. 
Lough, 95. 

Question 1. A mining corporation issues its 
stock with a par value of $100. Its entire 
capitalization is $1,000,000 of common stock, 
and $1,000,000 in cash was paid to the cor- 
poration for this stock, and used in the 
purchase of the mine, equipment for work- 
ing capital, etc. The ore has been carefully 
blocked out, and it is estimated that at the 
rate of working anticipated the ore will 
last 15 years. The mine is worked 5 years 
at the expected rate, and everything tends 
to show that the property was just worth 
the price paid for it. What is the value 
of the stock at the end of 5 years ? 

[28] 



Question 2. Certain real estate with an actual 
value of $250,000 and cash in the amount 
of $250,000 were turned over to a newly formed 
corporation for $750,000 par value of the 
stock of the corporation. The corporation 
expended the $250,000 in cash in erecting a 
loft building. Now, ten years later, the 
plot of land, without considering the value 
of the building, has an actual value of 
$750,000. (a) What was the original relation 
of assets to par value? (b) What is the 
relationship now? (c) The promoters antic- 
ipated this increase in land value. Were 
they justified in capitalizing as they did? 

Question 3. The X. Y. corporation issued its 
$1,500,000 of common stock, and received 
for it land worth $1,000,000 and $500,000 
in cash. Ten years later the land was worth 
only $500,000. Other assets were worth 
$500,000. Should the corporation reduce 
the amount of its stock outstanding? 

Question 4. The promoters of a corporation 
have $1,000,000 to invest in the enterprise. 
They want to keep control. The enterprise, 
however, requires $3,000,000 of capital. It 
is of such a character that not more than 
one-third of the capital should be represented 
by bonds. The promoters have options on 
certain properties for which they will have 
to pay $500,000. Development will use up 
the rest of the required funds. The pro- 
moters want their cash contribution repre- 

[29] 



sented by the same kind of security as the 
cash contributed by any one taking any 
security except bonds. Suggest a capitali- 
zation and distribution of securities that will 
meet these requirements. 



[30] 



TOPIC VIII 
Capitalization in Relation to Assets. Part II 

Lyon, 83-107. (Same as previous topic.) 
Mead, 60-74. 

Relation of value of assets to amount of 
earnings. 

Equity above the mortgage : 

Stipulations to keep the equity good; 

Stipulation for maintenance to keep the 
value of the assets unimpaired; 

Stipulation for the reduction of the 
debt (see special topic " Amortization/ f 
under topic XIX). 

The open mortgage — authorized and un- 
issued bonds: 
Lyon, 113. 
Heft 9 69-71, 239-241 (Definition of "open" 

mortgage not in accord with accepted usage.) 
Mead, 65-72. (Especially good treatment of 
this topic.) 

How will the future issuance affect the 
equity? Stipulations tending to maintain the 

[31] 



equity as bonds to be issued only for a certain 
percentage of the value of new assets or bonds 
to be issued only on the retirement of senior 
bonds. 

Junior mortgages placed after open mort- 
gages. Stipulation in the junior mortgage 
that no more bonds shall be issued under the 
open mortgage. 

Junior mortgage placed after a mortgage 
maturing earlier than the junior mortgage. 

Hefty 272. 

Expectation of not having the prior claim 
ahead of it after the maturity date of the prior 
claim. 

Possibility of extending the maturity of the 
prior debt, and stipulations in the junior mort- 
gage against it. 

Question: The X Corporation 

Value of 6% First Mortgage 

Assets Bonds Issued and 

Outstanding 
#3,000,000 #1,000,000 

Authorized and 
Unissued #1,000,000 
Net Income: 

Twelve months just past, #300,000. 
Preceding twelve months, #290,000. 
The Trustee is authorized to certify the un- 
issued bonds on the following conditions: 

[32] 



(a) That the earnings for each of the two 
preceding twelve-month periods are at least 
three times the interest charge on the bonds 
outstanding and those to be issued. 

(b) That the par of the additional bonds 
is not in excess of 75 per cent, of the cost of 
additional assets required by the corporation. 

The directors want to erect and equip a new 
building at a cost of $800,000. 

1. How many bonds can they issue to reim- 
burse the cost of the new assets ? 

2. What percentage of the value of the assets 
is the present mortgage debt ? 

3. What percentage of the value of the as- 
sets will the mortgage debt be when the addi- 
tional bonds are issued to pay for the new 
plant? 

4. What percentage of the value of the assets 
would the mortgage debt be if all the authorized 
bonds were issued ? 



[33] 



TOPIC IX 
Capitalization in Relation to the State 

Lyon I, 220-283. 

Ripley, 281-312 (Very full treatment of the sub- 
ject for railroads.) 

Mead, 75-80. 

Gerstenberg, 337-349. (New Jersey Public Utili- 
ties Act) 351-357. (General principles 
regulating action by the Public Utility 
Commission of New Jersey upon petitions 
asking approval of proposed issues of securi- 
ties.) 

Public Service Commissions and their func- 
tions. 
Lyon I, 240. 

Regulations of: 
Rates. 
Service. 
Securities. 
Accounts. 
Competition. 

[34] 



Public Service Commission. Control of Capi- 
talization. - 

Certificate of public convenience and ne- 
cessity. 

Gerstenbergy 345 (24). 

Capitalization in relation to valuation. 

Bases of valuation. 
Lyon I, 233-239. 

Investment. 

Replacement. 

Reproduction. 

Authority and Determination of the Com- 
mission on : 

The amount of securities to be issued. 

The purposes for which issued. 

The terms on which issued. 
Lyon, I, 248-259. 



[35] 



DIVISION III 

FINANCING NEW CAPITAL ASSETS — THE FINANC- 
ING THROUGH AND OF HOLDING COMPANIES 
AND SUBSIDIARIES COMBINATIONS AND MER- 
GERS INTERCORPORATE RELATIONSHIPS THE 

FINANCING OF SPECIAL ASSETS, I. E., SUCH AS 
EQUIPMENT — SPECIAL USES OF THE COLLATERAL 
TRUST 

TOPIC X 
Intercorporate Relationships 

Mead, 255-278. 
Mead, 325-331. 
Mead, 338-347. 
Ripley, I43-I47- 

Gerstenberg, 522-554. (Consolidation agree- 
ment.) 

Gerstenberg, 590-619. (Sherman Act, Clayton 
Act, Trade Commission Act.) 

Financing new capital assets. 

Mead, 255-278. 

Intercorporate Financial Relationships: The 
Collateral Security. 

[37] 



Authority of one corporation to own stock 
or other securities of another. 

Limitations imposed by anti-monopoly 
law. 

The operating corporation and the holding 
corporation. 

A corporation may be an operating com- 
pany only. 

A corporation may be a holding company 
only. 

A corporation may be both an operating 
and a holding company. 

Class of securities of one corporation owned 
by another: 

May own stock alone. 

May own bonds alone. 

May own stock and bonds. 

Amount of securities of one corporation 
owned by another giving rise to various situa- 
tions : 

May own all the stock. 

May own a majority of the stock. 

May own less than a majority of the stock 
but enough to effect actual practical control. 

May not own enough to control. 

May not own all the bonds or may own all 
the bonds of one issue when more than one 
issue. 

May own only part of bond issue. 

[38] 



If corporation owns a controlling amount 
of stock of another combination, or if less than 
a controlling amount but still an important 
minority, an intercorporate relationship exists; 
if corporation owns an unimportant minority, 
merely an investment. 

Community of interest. 
Ripley y 424. 

Corporation providing the funds may use its 
own credit to sell its own bonds to provide the 
funds. (It may pledge under a trust deed the 
stock or other securities it receives of the 
corporation to which it is providing the funds. 
This is the collateral bond.) 

The collateral bond. 
Mead, 325-331. 
Ripley, i43~H7> 1 S 6 - 

If a general obligation of the issuing corpora- 
tion and secured only by pledge of stock or 
bonds, a pure collateral bond. 

Bond may be secured by mortgage on tan- 
gible property and also by pledge of stocks or 
bonds. 

An interesting problem on Consolidation 
may be found in "Cole's Accounts/' pp. 346-51. 



[39] 



TOPIC XI 

The Future Acquired Property Mortgage 
Lyon I, 108-143. 

The future acquired property mortgage: 

Why created — demand of the capitalist 
in bargaining over the Investment 
Contract. 

Effect on future financing of corpora- 
tion whose assets covered by future 
acquired property mortgage. 

Cannot give first lien on new asset to 
finance its acquisition unless bonds are 
redeemed through purchase or call. 
Lyon I, 114. 

Creation of new corporation to finance ac- 
quisition of new asset. 
Lyon I, 120. 

Parent corporation provides funds to the 
subsidiary: takes stock and bonds of subsidiary 
(discussed in previous topic). 

Parent corporation reimburses itself entirely 
or in part by: 

[40] 



(a) Selling bonds of subsidiary; 

or 

(b) Guaranteeing and selling bonds of sub- 
sidiary (sell at a higher price by reason of the 
guaranty); 

Lyon I, 122. 

or 

(c) Selling its own bonds secured by pledge 
of bonds of subsidiary. 

Lyon I, 122. 

Since a lien now attaches to subsidiary, parent 
corporation may acquire assets of subsidiary 
subject to the lien. 

Use of the open collateral trust mortgage to 
finance acquisition of series of new assets. 
Lyon I, 124-126. 

Question: The X. corporation runs a little rail- 
way line from Y to Z. It is a narrow-gauge 
road, and the directors have decided that it 
would be profitable to convert it into a 
standard-gauge property and lay heavier 
rails. This will require about #1,000,000. 

Present Capitalization: 
Common Stock .... #2,000,000 
First mortgage 5% bonds, 

mortgage closed .... 1,000,000 

Net earnings 135,000 

How could the directors provide the new 

capital? 

[41] 



TOPIC XII 

The Holding Company: Financial Combina- 
tions 

Lyon II, 196-210. 
Ripley, 412-418; 420-455. 
Mead, 348-374. 
Lough, 49-54. 

Holding company may be pure holding com- 
pany, i. e., not conducting any operations of its 
own. 
Ripley, 433-455- 

Company conducting operations of its own 
may be used as a holding company. 

Acquiring control of subsidiaries by swapping 
stock of holding company. 
Lyon I, 127. 

Acquiring control of subsidiaries by purchase 
of stock. 

Funds for purchase provided by sale of 
holding company stock. 
Lyon I, 127. 

[42] 



Sale of holding company bonds unsecured 
by specific pledge of subsidiary stock. 

Secured by pledge of subsidiary stock. 
Lyon I, 128. 

Existing liens of subsidiaries. 

Possible creation of new liens on subsidiaries. 

Disadvantage of this to bondholders or pre- 
ferred stockholders of holding company. 
Lyon II, 203-205. 

Stipulations against this in the investment 
contract of the preferred stockholders or 
bondholders of the holding company. 
Lyon II, 206. 

Pyramiding for control by use of the holding 
company. 

Ripley, 524-532. 

General consideration of the income of 
holding companies. 
Lyon II, 196-210. 

Control through the same stockholders. 

Ripley, 423. 

Combinations of Public Utilities : 

Unity of Management. 

Central Power Plants. 
Gerstenberg Materials, 570-582. (Advantages 
claimed.) 

[43] 



Combinations in industrials. 

Combinations in railroads: 

(There is a large amount of material on the 
subject of trusts. Most of the argument, how- 
ever, relates to the economic and not to the 
financial aspects of combinations and is not 
germane to a course in Corporation Finance.) 

Financial arrangements on dissolutions of 
solvent corporations (i. e. y to comply with anti- 
trust legislation). 

Gerstenbergy 1001-1008 (Dupont Co. dissolu- 
tion). 



[44] 



TOPIC XIII 

Financing a Combination by Means of the 
Lease; Special Financing of Union Terminals; 
Special Uses of the Collateral Trust Agreement 

Lyon, 1 31-136. 

Mead, 375-384- 
Ripley, 418-421. 

Gerstenberg, 556-569 (example of a corporate 
lease). 

The lease by one corporation of the property 
of another corporation: 
Authority to lease. 

Why the lease resorted to : 

Avoids the raising of capital to finance 
the purchase of assets. An annual fixed 
charge (rental) instead. Sometimes ea- 
sier to negotiate than a purchase. 

Terms of the lease : 

Maintenance of the leased property. Pay- 
ment of an amount of rental equal to fixed 
charges and a percentage return on the 
stock of the lessor corporation. 

[45] 



Guarantee of interest and dividends. 
Lyon I, 133. 

Position of lease in receivership. 
Lyon I, 132; II, 227. 

FINANCING OF UNION TERMINALS 

Lyon I, 141-143. 

Terminal property owned by terminal cor- 
poration. 

Owning corporation leases property to enter- 
ing railroads. 

Rental — an agreement to pay rent sufficient 
to give a return on capital investment, i.e., 
an amount equal to fixed charges, etc. 

REALTY FINANCING 

Chamberlain, 366-372. 
Lyon I, 139. 

Use of the collateral trust to finance real 
estate loans. 

Deposit of real estate mortgages and uni- 
form issue of bonds against them. 

Federal Farm Loan Banks. 



t46] 



TOPIC XIV 

Special Financing of the Purchases of Railroad 
Equipment 

Chamberlain, 292-300. (Full treatment.) 
Cleveland and Powell, "Railroad Finance," 81-94 
Ripley, 171 (brief). 

Financing the purchase of railway equipment 
by giving the lender a special claim on the 
equipment: 

The future acquired property mortgage 
prevents this being done directly. 

Railroad makes contract with manufac- 
turers for equipment; assigns contract to 
third party who makes conditional sale of 
equipment to railroad for series of notes 
(bonds) of railroad with title of equipment 
to pass to railroad when all notes are paid. 
Equipment mortgaged to secure notes. 
Lyon I, 149; II, 227. 

Conditional sale: 

Conditional sale and chattel mortgage 
recording acts. 
Special state acts. 

[47] 



Equipment bonds issued up to per cent. 
of cost of equipment. 

Railroad makes first cash payment of 
difference between par of the bonds author- 
ized and cost of equipment. 

Railroad's covenant to replace damaged, 
lost, or destroyed equipment, etc. 

Philadelphia Plan: 

Equipment leased (not sold on conditional 
sale) to railroad. 

Leases deposited with trustee who issues 
trust certificates against them. 

Tax exemption in Pennsylvania. 

Serial maturity of equipment securities and 
depreciation of equipment. 



[48] 



TOPIC XV 

Stock: Its Issuance and Sale 

Lyon II, 1-34. 
Mead, 91-117. 

Ripley, 268-274. (Check up with the reference 
to Lyon on the legal requirements.) 

(It should be noted that this is almost en- 
tirely a legal topic. Precisely what may be 
done depends on the law of the particular 
jurisdiction. This course can discuss the sub- 
ject only in its broad general outlines) : 

Stock, authorized, issued, outstanding. 
Authorized issue: 

Classes. 
Issuance of stock: 

Subscription for. 

Part paid and full paid. 

Payment for stock: 

By money, services, or property of the 
value of the par of the stock. 

Valuation of property paid for by stock. 
[49] 



Treasury stock: 

Difference between authorized and un- 
issued stock and treasury stock. 

Not an asset of the corporation. 

How stock is sold for less than par: 

Treasury stock — corporation may sell at 
any price. 

Stock dividend: If the corporation has a 
surplus may declare it out in a stock divi- 
dend and stockholders pool their holdings 
to issue to the public. (For more of this 
see under the "Readjustment of the Cap- 
ital Account " topic XXIX.) 

Stock without par value. 
Lyon I, 84. 

Rights of stockholders to new issues of stock: 

Right to subscribe at par (or in some 
jurisdictions at a price stated and not to 
be sold at a lower price). 

Value of rights to subscribe. 

Equivalent to dilution of surplus. 

Underwriting an issue of stock: 

May be sold to bankers or public when 
treasury stock. 

On issue of corporation not sold but under- 
written. 

[So] 



Increasing the amount of stock authorized. 
Decreasing the amount of outstanding stock. 
The issuance of stock on conversion. 
Ripley, 276. 

Question 1. A corporation has #1,000,000 out- 
standing, #2,000,000 authorized and un- 
issued stock. A capitalist who is familiar 
with the affairs of the corporation offered 
to buy 500 shares of the authorized and 
unissued stock at #115 a share. The cor- 
poration wanted the money and the price 
was a fair price for the stock. Could the 
directors accept the offer? 

Question 2. The X corporation announces that 
stockholders of record on the 1st of April 
will have the privilege of subscribing to 
#1,000,000 of new stock of the corporation 
at par. 

(a) The corporation has stock issued and 
outstanding of #5,000,000. A owns 25 shares 
of stock. How much of the new stock will 
he have a right to subscribe for? 

(b) A transfers his stock on the 25th of 
March to B by giving him a new certificate 
made out in the name of B. Who has the 
right to subscribe to the new stock? 

(c) On the 2d of April the stock of the 
corporation is quoted at #125 a share. What 
is the value of the right accruing to one share 
of the old stock ? 

[51] 



(d) Assume that the stock of the X cor- 
poration is selling at $150 at the time of the 
announcement of rights. What should it 
sell for when it goes "Ex-rights"? 



ts*] 



TOPIC XVI 
Stock: Its Form and Transfer 

Lyon I, 166-173. 

The stock certificate : 
Face of the certificate. 
Power of attorney. 

Power of substitution. 
The certificate book: 

The stub. 
Transfer agent. 
Registrar of transfers. 

The stock book: 
Holders of record. 
Dividends to holders of record. 
Closing book over dividend period. 

Good delivery. 

(Rules of Committee on Securities, New 
York Stock Exchange.) 

[S3l 



Regulations regarding transfer. 
Transfer tax. 
Subscription receipts. 
Interim certificates. 



[54] 



TOPIC XVII 

Bonds: Their Issuance Form and Transfer 

Lyon I, 173-199. 
Mead, 299-324. 

Authority to issue bonds : 

Not limited by charter (ordinarily). 

Special statutory limitations (as that debt 
shall not exceed amount of stock). 

Borrowing and mortgage authorized by 
stockholders. 

Certification and Issuance: 

Execution and authentication of bond by 
signatures of officers and seal of corporation 
and certification of trustee. 

Conditions under which bonds may be 
issued stated in the investment contract 
(trust deed mortgage). 

Bonds redeemed after issuance are "dead" 
bonds and if reissued create a different debt, 
i. e. not with the same mortgage lien as out- 
standing bonds. 

[SSI 



Hold by a trustee if to be kept alive for 
sinking fund or otherwise. 

Terms of the bond: 
Maturity. 
Denomination. 
Interest rate. 
Interest dates. 
Registered and coupon: 

Registered as to principal. 

Interchangeable. 
Place of payment (Domicile). 
Payment in different monies. 
Prior redemption right. 

Bonds: Their transfer: 

Coupon by delivery. 

Registered — by transfer on books of cor- 
poration. 

Rules of transfer. 

Subscription receipts. 
Interim certificates. 
Temporary bonds. 
Definitive bonds. 



[56J 



TOPIC XVIII 
The Corporate Mortgage and Trust Deed 

Heft 9 56-145. 

Gerstenberg, 183-254. (Reproduction of one 
corporate mortgage.) 

Recitals : 

Incorporation, authorization of bonds and 
mortgage, form of bonds, coupons and authen- 
tication. 

Granting clause: 

Description of property mortgaged or 
pledged. 

Issuance of bonds (with execution, authen- 
tication and registration clauses). 

Conditions under which bonds may be 
issued: 

Bonds to be issued immediately. 

Bonds reserved for refunding, or for the 
acquisition of additional assets, and condi- 
tions under which the trustee may certify 
bonds for issuance. 

[57] 



Provisions for redemption: 

Sinking fund. Rights of redemption be- 
fore maturity. 

Covenants of the corporation. 

Agreements for maintenance, insurance, etc., 
against the issuance of further securities by sub- 
sidiaries whose securities are pledged. (In 
case of trust deed for debentures, against the 
creation of prior claims.) Covenants relating 
to the control of pledged securities. Provisions 
for audits, dividend payment, restrictions, etc., 
etc. General legal covenants. 

Remedies of trustees and bondholders, and 
special law clauses: 

Law covenants stating rights under the 
mortgage. 

Releases of mortgaged property. Defining 
the duties and protecting the trustee. Execu- 
tion and recording of the document. 

The corporate mortgage an elaborate invest- 
ment contract. 



[58] 



TOPIC XIX 
The Maturity of the Debt 

Lyon I, 144-165. 

Gerstenberg, "Syllabus/' 30, 31. 

Mead, 81-90. 

Ripley, 130-132 (brief). 

An extension of the debt may be had by 
agreement. 
Chamberlain, p. 101, Par. 293; p. ill, Par. 340. 

Heft, 327. 

Position of junior lienor on extension of 
debt with senior lien. 

Covenants in junior lien agreement that 
senior lien debt will not be extended. 

Refunding: 

The refunding mortgage. 

Burden of the debt (i. e., the annual charge, 
against the corporation for interest and sinking 
fund or serial maturity). 
Lyon \, 152. 

Amortization of the debt: 
Serial maturity. 

[59] 



Special sinking funds. 
Repurchase of securities: 

Reserved right of redemption. 

Keeping bonds alive in the sinking fund. 

Tests of amortization provisions : 

1. What assurance that amortization pro- 
visions will be carried out? 

2. How will they affect market ? 

3. How evenly do they distribute the burden 
of the debt ? 

4. Work involved in carrying out provisions. 

5 Assurance that provisions equal require- 
ments. 

6. Cost. 



[60] 



TOPIC XX 
The Corporate Income and Its Disposition 

Lough, 415-434, 465-481. (A good discussion.) 
Lyon I, 173-208. 
Chamberlain, 263-279. 

Ripley, 238-247. (On disposition of the sur- 
plus.) 

Mead, 171-254. (An especially full discus- 
sion.) 

Gross income. Income from operation. In- 
come from outside operations and other income. 

Income from operations — its liability to 
fluctuation. 

Income from the ownership of securities — 
character of this income. 

Income of the holding company: 

Influence of liens on the subsidiaries. 

Cost of conducting operations: 
Efficiency of plant. 
Efficiency of management, 
[61] 



Cost of maintenance: 

Is enough being expended to maintain 
efficiency of plant ? 

Are net earnings being shown at the ex- 
pense of maintenance ? 

Are expenditures on the capital account 
being charged to maintenance? 

Taxes — the taxation of corporations. 
Lyon, "Principles of Taxation," 113-119. 

Net earnings and fixed charges. 
Disposition of the surplus income. 

Policy of building up a capital surplus 
and its relation to the maintenance of divi- 
dends. 

Gerstenberg, "Syllabus," 62. 

Ripley, 238-247. 

Lough, 422-434, 465-48 1 • 

Reserves. 
Lough, 422-428. 



[62] 



TOPIC XXI 

Declarations and Payments of Dividend 

Lough, 425-464. 
Mead, Chap. 17, 18. 

Directors declare dividend: 

Power of directors over dividend declara- 
tion. 

To stockholders of record at a certain date. 

When paid. 

Closing of books to make up the record. 

Transfer of certificate while books are 
closed — who gets the dividend ? 

Quotations — ex dividend. 

Extra dividends: Special dividends. 

Stock dividends: 

(Purpose treated more fully later under read- 
justment of the capital account topic XXIX.) 

Distribution of surplus : 

(Dilution of surplus — lessening of surplus 

[63] 



per share of stock through subscription 
rights). 

Dividend warrants. 

Accumulated dividends on cumulative pre- 
ferred stock. 

May be good business for the common stock- 
holder to let preferred dividends accumulate, 
getting use of money for nothing. 

Rights of preferred and common stock- 
holders in distribution of surplus. 



[6 4 ] 



DIVISION IV 

THE DISTRIBUTION OF SECURITIES 

Lyon, 35" 101 - 

Mead, 1 18-144. 

Lough, 201-228, 291-318. 

TOPIC XXII 
The Sale of Securities by the Corporation 

Direct to the public. 

Why not successful. 

To its own stockholders. 
Lyon II, 15. 

Underwriting the sale. 
Lyon II, 17. 

To investment bankers. 
Lyon II, 2. 
Lough, 319. 

Selling to the corporation's own stockholders. 
Stockholders' "rights." 
Gerstenberg, 358-366. 
Lough, 298-308. 

[65] 



Selling to investment bankers. 
Appraisals — engineer's report. 

Gerstenberg, 457-488. 

Audits — expert accountant's reports. 
Legal opinions: 

Title to property. 
Legality of procedure for issuance. 

Sales at auction — Public Service Corporations. 

Lough, 308-310. 



[66] 



TOPIC XXIII 
Syndicates: The Joint Account 

Lyon II, 102-156. 
Lough, 339-353- 

Financing the purchase of securities by the 
investment banker. 

Cooperation in the purchase and sale of 
securities ■ 

For greater banking power. 

For greater selling power. 

Formation of the joint account. 

The syndicate manager. 

Purchase of the securities by the syndicate. 

Members' contribution to price — members' 
capital and borrowed capital. 

Carrying the securities: 

Undivided carrying. 

Divided carrying. 
The syndicate price. 

[67] 



Releasing securities as collateral for the loan 
in order to make deliveries. 

The take down price, or price of purchase 
by the selling member from the syndicate. 
Effect in keeping profits undistributed. 
Broker's commission. 
Members' selling commission. 
Territory. 
Advertising. 
Duration of the account. 



[68] 



TOPIC XXIV 

The Joint Account: Distribution of Profits 
and Losses: Under writings 

Lyon II, 102-156. 
Mead, 159-170. 

Unlimited (or undivided) liability accounts: 
Distribution of profits. 
Distribution of unsold securities or of losses. 

Limited (or divided) liability accounts: 

Distribution of profits and of unsold secur- 
ities or of losses. 

The underwriting as a form of the syndicate, 
to be distinguished from the ase of the term 
as an assurance against loss on a sale by the 
corporation in lieu of a purchase for which see 
Topic XXII. 

The formation of a second syndicate to 
purchase from the first syndicate or original 
purchaser: 

Restricted and large underwriting grcups. 

Application for the underwriting. 

Allotments of subscriptions. 

[69] 



TOPIC XXV 
Work of the Bond Houses 

Chamberlain: Work of the Bond House. (En- 
tire). 
Lyon II, 35-101. 
Lough, 319-328. 

Selling securities by the investment bankers. 

Organization of an investment banking 
house. 

Negotiating, investigating, statistical, exe- 
cutive, buying, selling, accounting, and record 
keeping departments. 

Work of the statistical department, analyses, 
preparation of circulars, etc. 

Work of the cashier's (accounting) depart- 
ment: 

Receiving and delivering securities. 
Taking care of loans, substitutions, etc. 
Keeping accounts. 

Work of the selling organization: 
Mailing list. 
Circulars. 

[70] 



Work of the securities salesman: 
Selection and training of salesmen. 
Territory and methods of work of salesmen. 

Work of the banking house in creating and 
supporting a market 



l7i] 



TOPIC XXVI 

Listing Securities On and Selling Them 
Through the Stock Exchange 

Lyon II, IS7-I74- 
Chamberlain, 62-68. 

Gerstenberg, 162-170. (An application for list- 
ing.) 
Lough, 328-338. 

Reasons for and against listing an issue of 
securities on the stock exchange. 

Listing requirements: 

Application to committee on the stock list. 

Expense. 

Location of transfer agent and registrar 
of transfers. 

Mechanical preparation of securities. 

Documents required. 

Other information required. 

Promotions. 

[72] 



Mead, 14-24. 

Gerstenberg y 457-468. (An engineer's report for a 

promotion.) 
Gerstenbergy 499-521. (An agreement to purchase 

assets, etc.) 



[73] 



DIVISION V 

THE CORPORATION IN FINANCIAL DIFFICULTIES, 
RECEIVERSHIPS, BANKRUPTCIES, REORGANIZA- 
TIONS, READJUSTMENT OF THE CAPITAL AC- 
COUNT, RECAPITALIZATION 

TOPIC XXVII 
Receiverships and Reorganizations 

Lyon II, 220-307. 

Ripley, 37i"388. 

Mead, 406-426. 

Cleveland i$ Powell " Railroad Finance," 227-270. 

Lough, 573-59 2 - 

Default and application for receiver. 

Financial management of property in re- 
ceivership. 

Receivers' certificates. 

Protective committees : 

Powers. 

Calling for deposit of securities: 

Depositaries. 

[75 1 



Certificates of deposit. 

Listing. 

Policy of security holders with regards 
depositing. 

Foreclosure suit. 

Appraisal and auditing. 

Books that should receive special mention 
in connection with the subject of reorganiza- 
tion are: 

" Railroad Reorganization/ 5 by Stuart Daggett, 
which is a study of various railroad reor- 
ganizations. 

" Corporate Promotions and Reorganizations," 
by Arthur S. Dewing, which is a study of the 
promotion and reorganization of various 
industrial enterprises. 

"Some Legal Phases of Corporate Financing, 
Reorganization, and Regulation," by Stet- 
son, Byrne, Cravath, Wickersham, Mon- 
tague, Coleman, and Guthrie, is a book of 
great value. Though primarily for a lawyer, 
a man who is studying the financial aspects 
of these topics can get much of value from it. 



[76] 



TOPIC XXVIII 
Reorganizations 

Readjustment of the capital account recap- 
italization. 

Lyon, 220307. (Same as previous topic.) 
Heft 9 335, 404. 
Ripley, 338-411. 
Mead, 427-460. 
Lough, 593-606. 

The financial plan of reorganization. 

Filing reorganization agreement. 

Giving depositors an opportunity to with- 
draw. 

Declaring plan operative or inoperative. 

Extension of time to deposit. 

Decree of foreclosure. 

Upset price. 
Provision for cash requirements : 

Assessments. 

Sale of new securities. 
[77] 



Underwriting and purchasing syndicate. 

Readjustment of the capital account recap- 
italization. 

Lyon, 296-307. 

Me ad j 365-405. 

Gerstenberg, "Materials," 910-934. (Recapi- 
talization of Chicago & Alton.) 

Gerstenberg, "Materials/ 5 935-965. (Readjust- 
ment of debt, Hudson & Manhattan R.R. 
Co.) 

Gerstenberg, "Materials," 966-1000. (Reorgan- 
ization of B. & O.) 

Distribution of securities on dissolution under 
Anti-Trust Act. 
Gerstenberg, 1001-1008. (Dupont Powder Co.) 



[78] 



TOPIC XXIX 

Promotions 

Lough, 229-290. 

Mead, 14-24. 

Gerstenberg, 457-468, 499-521. 

Cooper, "Financing an Enterprise." 

Gerstenberg, "Syllabus," Chapter XV. 

Requisites of a successful enterprise. 

Cooper, 27-47. 

A sound undertaking. 
Sufficient capital. 
Efficient management. 
A sound undertaking: 
Investigation. 

(Industrial enterprise) 
Basis of enterprise. 
Title to property. 
Cost of construction. 
Capacity and market. 

[79] 



Environment. 

Conditions of operation. 

Lough, 229-240. 
Cooper, 48-65. 

Investigation. 

(Transportation enterprise) 

Cleveland tf? Powell, 14-19. 

Basis of enterprise: 

Population, capital, and resources. 

Survey (for advantageous operating and cost 
of construction). 

Grades, curvature, and cost of right of way. 

Charter. 

Investigation : 

(Gas, electric lighting, street railway.) 

Basis of enterprise: 
Population and area. 

Cost of production and market at price 
that will produce a profit. 

Assembling and preliminary financing. 
Lough, 240249. 

Who act as promoters, legal status. 
Lough, 250-264. 

Promoting combinations. 
Lough, 265-290. 

[80] 



BOOKS REFERRED TO IN THE OUTLINE OF A 
COURSE IN CORPORATION FINANCE 

Byrne — Some Legal Phases of Corporate Financing, New 
York Bar Association Lectures — Byrne, Stetson, 
Cravath, Wickersham, Montague, Coleman, Gu- 
thrie, New York, 1917, MacMillan, $2.75. 

Chamberlain — The Principles of Bond Investment. By 
Lawrence Chamberlain, 191 1. New York, Henry 
Holt & Company, £5.00 net. 

Chamberlain — The Work of the Bond House, New York, 

1912, Moody's, $1.00. 

Cleveland — Railroad Finance. By Frederick A. Cleve- 
land and Frederick Wilbur Powell, New York, 
D. Appleton & Company, $2.75 net; by mail, 
$2.95. 

Cole — Accounts, Their Construction and Interpretation. 
By William Morse Cole, Professor of Accounting, 
Harvard University. Revised edition, 191 5. Bos- 
ton, Houghton Mifflin Co., $2.50. 

Cooper — Financing an Enterprise. By Francis Cooper. 
Fourth Edition. 1915. New York, Ronald Press 
Co., $3.00. 

Conyngton — The Modern Corporation. By Thomas 
Conyngton. A condensation of the matter con- 
tained in the larger corporate works of Conyngton. 

1 91 3. New York, Ronald Press Co., #2.00. 

Conyngton — Corporate Management. By Thomas Co- 
nyngton. Covering the legal management of cor- 

[81] 



porations after they are in operation. Details the 
procedure under the charter and by-laws, recording 
the minutes, transfer of stock, rights, powers, and 
responsibilities of stockholders, directors, and offi- 
cers with forms for minutes, motions, resolutions, 
reports, stock certificates, etc. — Third edition. 
191 1. New York, Ronald Press Co., $3.50. 

Conyngton — Corporate Organization. By Thomas Co- 
nyngton of the New York Bar. A manual for busi- 
ness men covering the legal features involved in 
incorporating a business. Third edition. 191 3. 
New York, Ronald Press Co. $4.00. 

Daggett — Railroad Reorganization. By Stuart Daggett. 
Boston, Houghton Mifflin Co., 1908. £2.00. 

Dewing — Corporate Promotions and Reorganizations. By 
Arthur S. Dewing. Boston, Houghton Mifflin 
Co., £2.50. 

Emery — Speculation on the Stock and Produce Exchanges 
in the United States. By Henry C. Emery. New 
York. MacMillan Co., 1904. $2.00. Paper $1.50. 

Fisher — Elementary Principles of Economics. By Irving 
Fisher, Professor of Political Economy, Yale Uni- 
versity. New York. 1912. MacMillan Co., $2.00. 

Gerstenberg — Materials of Corporation Finance. By 
Charles W. Gerstenberg, Professor of Finance, 
New York University, School of Commerce, Ac- 
counts and Finance. New York, 1915. Prentice 
Hall, #5.00. 

Gerstenberg — Syllabus of Corporation Finance. New 
York, 1915. Prentice Hall. 50 cents. 

Heft — Holders of Railroad Bonds and Notes, Their Rights 
and Remedies. By Louis Heft. New York, E. P. 
Dutton & Co., 191 6. $2. co. 

Hatfield — Modern Accounting. By Henry Rand Hat- 
field, Ph.D., Professor of Accounting, University 

[82] 






of California. New York, D. Appleton & Co., 
$2.00. By mail, $2.14. 

Lough — Business Finance. By William H. Lough. The 
Ronald Press, New York, 1917, pp. 631. £3.00. 

Lyon — Corporation Finance. By Hastings Lyon. Com- 
plete Edition. 1916. Vols. I and II bound to- 
gether. Boston, Houghton Mifflin Co., $3.00. 

Mead — Corporation Finance. By Edward S. Mead, 
Ph.D., Professor of Finance, University of Penn- 
sylvania. New York, D. Appleton & Co., $2.25. 

Montgomery — Auditing Theory and Practice. By R. 
H. Montgomery, C. P. A. Second edition. 19 16. 
New York, Ronald Press Co., $5.00. 

Pratt— The Work of Wall Street. By Sereno S. Pratt, 
Formerly Secretary New York Chamber of Com- 
merce. New York, D. Appleton & Co., #2.00. 

Ripley — Railroads; Finance and Organization. By Wil- 
liam Z. Ripley. New York, Longmans, Green & 
Co., 1915. $3.00. 

SELIGMAN — Principles of Economics. By Edwin R. A. 
Seligman, Professor of Political Economy, Colum- 
bia University. New York, Longmans, Green & 
Co., $2.50. 

Stockwell — Net Worth and the Balance Sheet. By Her- 
bert G. Stockwell, C. P. A. A book for readers 
who are not accountants, explaining the nature of 
the financial statement or business "balance sheet"; 
what it shows, how to read it, and how it is used 
for the guidance of business concerns. 191 2. 
New York, Ronald Press Co., Cloth, gi.oo. 

Sullivan — American Corporations. By John Sullivan, 
Professor of Law, University of Pennsylvania. 
New York, D. Appleton & Co., $2.25. 

Taussig — Principles of Economics. By F. W. Taussig, 
Professor of Economics, Harvard University. New 
York, 1911. MacMillan, 2 vols, each volume $2.00. 

[83] 



OUTLINE OF A COURSE IN 
INVESTMENT 



Full titles of books referred to will be found 

in the bibliography at the end of 

the outline 



OUTLINE OF A COURSE IN INVEST- 
MENT 

THIS COURSE ASSUMES A KNOWLEDGE OF THE SUB- 
JECT INDICATED IN THE SYLLABUS OF A COURSE 
IN CORPORATION FINANCE 

TOPIC I 

What is Investment? 

Chamberlain, 1-13. 
Raymond, 1-4. 

This first topic will serve to connect the 
course with the general principles of economics, 
and with the preceding course in Corporation 
Finance. 

Use of capital in production. 
Increasing importance of capital in produc- 
tion. 

Theory of interest : 
Demand for capital. 
Reward for saving. 
True interest. 
Premium for risk. 

[87] . 



Lyon, "Corporation Finance," Part I, pp. 224- 

232. 

Commitment of capital with management. 

Commitment of capital without manage- 
ment. 

Demand for this increase with increasing 
complexity of economic life. 

Commitment of capital with limitation of 
risk. 

As proprietor: 

Corporations — preferred stock. 
Partnership — special partnership. 
Individual — rental. 
As lender: 

Risk, Income, Control 
Lyon, "Corporation Finance," Part I, pp. 
1-17, 29-30. 

Relationship of Investment and Speculation. 

Definition of investment for purposes of this 
course. 

An investment is: 

1. A commitment of capital for use in 
production; 

2. Entrusted to the management of an- 
other; 

3. For which the primary purpose of the 

[88] 



capitalist in making the commitment is to 
receive income by reason of the use in pro- 
duction (a transaction primarily for profit 
due to change in price is not an investment 
but a speculation, even though the capital so 
committed is used in production) ; 
4. In which the estimated risk for use in 
production is not so great that the premium 
for risk is greater than the true interest. 
For purposes of this course we will regard 
land as capitalized and treat it as capital. 

Apply this definition of investment to : 

Real estate proprietorship. 
In use. 
Not in use. 

Mortgages. 

Corporate stock. 

Corporate bonds. 

Municipal bonds. 

(Show how government and municipal 
loans come under the head of commitment 
of capital in production.) 



[89] 



TOPIC II 
Tests of an Investment 

Chamberlain, 13-62. 
Investment tests: 

1. Security of principal: 

As affected by management. 
Judgment in making the original com- 
mitment. 
Maintenance of assets. 

From the nature of the business. 
From the investment contract. 

2. Stability of income: 

As affected by management. 
From the nature of the business. 
From the investment contract. 

3. Fair income return: 

True interest plus premium for risk, 

4. Marketability. 

5. Value as collateral: 

Depends on quickness, closeness, and sta- 
bility of market. 

6. Tax position. 

[90] 



Federal, state, and local. 

7. Freedom from care. 

8. Acceptable duration. 

9. Acceptable denomination. 
10. Appreciation. 

The term "investment contract" will be 
used as expressing the obligations of the party 
(government, municipality, corporation, in- 
dividual) to which or whom the use and man- 
agement of the capital is entrusted, and the 
rights of the investor who has made the com- 
mitment of his capital. 

Look up several corporations and set down 
the securities issued by each, find the quotation 
and compute the yield to show the effect of the 
investment contract, i. e., as: 

UNION PACIFIC PRICE YIELD 

Common (8% div.) 

Preferred 4% 

Convertible 4%, 1927 
First and Ref. 4%, 2008 . 
First and Land Grant 4%, 47 

Risk arising out of the nature of the business: 
Security of principal. 
Stability of income. 
This sub-topic, stability of income, refers 
back to the discussion of the relative fluctua- 
tions of income from different businesses dis- 
cussed in the preceding course in Corporation 
Finance. SeeZ/ycm, "Corporation Finance," Part 
I, pp. 50-82. 

[9i] 



147 


5-44 


83 


4.82 


94 


4.70 


9i 


4.40 


98 


4. 10 



As to security of principal apply test of risk 
from nature of the business to several kinds of 
business, as for example to: 

Mail order business; establishing a new 
magazine; owning and operating timberland; 
conducting an ostrich ranch; making war 
munitions; building railroad through new 
country; flouring mill; starting an electric 
light plant. 

As to stability of income apply to several 
kinds of business: 

Making railway equipment; street rail- 
way; the lumber business; steam railroad; 
gold mining; contracting business; grocery 
store. 



[92] 



TOPIC III 

Government Bonds 
Raymond, 5-93. 

Only the general knowledge of government 
finance that any fairly well-informed citizen 
has is necessary for the special study of govern- 
ment and municipal obligations as investments. 
A more thorough-going knowledge of public 
finance, however, is desirable. For this sub- 
ject standard large works are: 

Bastable, C. F., "Public Finance." Adams> 
H. C. "Science of Finance." 

Plehn, Carl C, "Introduction to Public Fi- 
nance," New York, is a shorter work. 

Of Bastable, especially pp. 1-220 and 612- 
769 should be read and of Plehn, pp. 1-102, 
366-465 and corresponding Topics in Adams. 
The rest of these books is a discussion of taxa- 
tion. Though a knowledge of the problems of 
taxations is desirable, it hardly has the same 
importance as a basis for the study of invest- 
ment in the public debt as other and more 
general matters of public finance. For a brief 

(93] 



simple discussion of taxation, especially as af- 
fecting investments, see: 

Lyon, "Principles of Taxation," Boston. Hough- 
ton Mifflin Co. 

This was originally a report to the Invest- 
ment Bankers Association. 

General tests of credit applicable to all 
creditors: 

Ability to pay. 

Willingness to pay. 

Ability to pay — depends on: 
Capital. 
Labor. 

Ability to pay as applied to government 
obligations depends on: 

Natural resources. 

Productivity: 

Capital. 

Labor. 

Population. 

Number. 

Moral and intellectual quality. Willingness 
to pay: 

The willing debtor. 

The unwilling debtor. 

[94] 



(a) When compulsion cannot be brought 
to bear. 

(b) When compulsion can be brought to 
bear. 

Government obligations : 

No compulsion — people cannot sue the sov- 
ereign. 

Unwillingness to pay due to change in gov- 
ernment. 

Secured government bonds: 

As on customs receipts — but enforceable 
only by consent or with force; deposit 
of collateral. 

Ability to pay — resources of the country. 

Land — agricultural, forest, mineral. 

Labor — numbers, intelligence, energy. 

Capital — sufficient for extractive indus- 
try sufficient for manufacturing. 

Amount of debt used unproductively. 

Total debt less debt used productively 
equals true net debt. 

National Debt — paper money plus bonds. 
External and internal loans. 

Look up New York quotations on foreign 
bonds and show how price is affected by invest- 
ment contract as to place of payment and in 

[9Sl 



general the problem of foreign exchange in 
relation to foreign government. 

Special foreign issues: 

British consols, 

French rentes. 

Foreign issues dealt in the American mar- 
ket. 

Canadian securities. 



[96] 



TOPIC IV 
United States Government Bonds 



Chamberlain, 1 15-122. 
Chamberlain (Appendix), 
ernments." 



C A Gamble in Gov- 



If the bond man studying this topic does not 
already have available the following: 

"National Banking Act." 

" Federal Reserve Act." 

"Postal Savings Bank Act." 
he can procure them on application to the 
Bureau of Printing, Washington, D. C. See 
list of books at the end of this outline. 

United States Government Bonds: 

HISTORY OF DEBT OF UNITED STATES 

Present United States interest bearing debt (as of June 

30, 1916.) 

2% Consols 1930 $ 646,250,150 

3% Loan 1908-18 198,992,660 

4% Loan 1925 162,315,400 

2% Panama 1916 54,611,420 

2% Panama after 191 8 . . . . 30,000,000 

3% Panama 1961 50,000,000 

2§% Postal savings 31-33 . . . 5,508,060 

2\% Postal savings 1935 .... 933*54° 

[97] 



To which there has since been added 
3^% Liberty Loan 1932-47 . . . 2,000,000,000 
4% Liberty Loan 1927-42 . . . 3,000,000,000 
(or more, as this goes to press the amount has not been 
determined). 

Look up current quotations on United States 
Government Bonds and compute bases. (The 
following are as of August 19, 1916): 

2% Apr. 1930 99 2.10 

4% Feb. 1925 no 2.60 

2% Panamas 1936 98-4 2.10 

3% Panamas 1961 ioi-£ 2.96 
Explain yield differences. 

Bonds available for circulation. 
Tax on 2s |%. 
Tax on old 4s 1%. 
3 s and new Liberty loans not available. 

Provisions of Federal Reserve Act for re- 
demption of United States Bonds, and for issue 
of Reserve notes. 

Postal savings bonds — provisions of act. 

Use of bonds to secure circulation. 

Freedom from taxation. 
"Federal Reserve Act" sees. 111-118. 
"National Banking Act" sees. 55-70. 



[98] 



TOPIC V 
State Bonds 

Chamberlain, 122-158. 

Raymond , 94-139. 

Secrist, "An Economic Analysis of Constitu- 
tional Restrictions upon Public Indebted- 
ness In the United States." 

Commercial and Financial Chronicle, State 
and City Supplement, history of state debts. 

Scott, "Repudiation of State Debts." 

This is an entire book on the subject which, 

though out of print, is available in libraries, 

referred to for those who want further reading. 

For the purpose of the course, the references to 

Chamberlain and to Raymond, pp. 102-128, 

are ample. 

In considering these defaults the political 

situation at the time of them should be kept in 

mind, and the fact that the purchasers from the 

state governments in many cases knew the 

political situation. 

Constitutional provisions in state constitu- 
tions on debt. 

Look up and write out the provisions for 
your own state. 

[99] 



A convenient reference is to the Chronicle, 
State and City Supplement. 
Raymond, p. 130. 

Purposes of State Debt. 

Look up and write out the debt statement 
of your own state showing the purposes for 
which bonds were issued. 

State Credit. 

Look up and make out statement of quota- 
tion and compute basis for bonds of each state. 
Chronicle quotation supplement. 

New York — Special provision giving different 
basis for different issues. 

Especially explain New York quotations. 
(The quotations given represent prices in the 
fall of 1916). 

Basis 

N. Y. 3$ I9S9> 99f 3.oo 

N. Y. 4s 1961, iosf 3-75 

N. Y. 4§s 1963, nsf 3.80 

(When held as capital, surplus, etc., of sav- 
ings bank, trust company, insurance com- 
pany, 1% on par of 3s held and J% on par of 
4s deducted from tax. Tax law 1903). 

Explain Virginia quotations (the quota- 
tions given represent prices in the fall of 1916). 

6% deferred certfs. 1 871 Brown Bros. Certfs. 
532 Basis 

3 s Riddlebergers 1932, 91I 3.72 

3s 1991, 83 . 3.70 

[iOO] 



Develop history and present standing of 
Virginia-West Virginia controversy. 
Chamberlairiy 384, note, et seq. 
Raymond, 114-118. 

220 U. S. I. (Supreme Court Reports.) 
238 U. S. 202. (Supreme Court Reports.) 



[101] 



TOPIC VI 
Municipal Bonds 

Chamberlain, 159-225. 

Raymond, 140-161. This reading for two 

topics, VI and VII. 

Write out quotations and compute yields 
for municipal bonds of ten municipalities, of 
essentially different populations and in dif- 
ferent states. Chronicle quotation supple- 
ment. 

Look up quotations and yields in a consider- 
able list of representative municipals — large 
and small municipalities and variously distrib- 
uted geographically. 

Willingness to pay: 

Compulsion can be brought to bear. 
New England — execution. 
Generally — mandamus. 

Classes of Municipals: 
County. 
City. " 

[102] 



Town. 
Districts: 

School, 

Park. 

Sewer, etc. 

Levee. 

Drainage. 

Irrigation. 

Why municipalities borrow (long term) money: 
To equalize burden of expenditures. There 
is a theory that a municipality should not 
be in debt because non-productive. But the 
debt may be very essentially productive. 
The dollar the citizen does not have to give 
up in taxes he can use in his own business. 
But the way public business is conducted 
requires special restrictions. It should be 
hedged in by conservative principles because 
of the small personal responsibility. The 
individual goes broke in his own business if 
he isn't sound. But if the community is 
unsound in its business no particular in- 
dividual suffers a sufficiently severe penalty 
to make the penalty a sufficient deterrent. 



[103 ] 



TOPIC VII 

The Municipal Statement and Significance 
of the Items in It 

Reading as for Topic VI. 

Chamberlain, 159-225. 
Raymond, 1 40-1 61. 

Ability to pay. 

MUNICIPAL STATEMENT CITY OF R 

Total Bonded Debt . . . $20,747,475 

Water Debt .... $8,926,000 
Sinking fund .... 1,488,244 10,414,244 

Net Debt .... $10,333,231 

Assessed Valuation 

Real Estate . . . $215,285,489 (assessment 

Personal .... 26,661,470 about actual 



value) 



$241,946,959 
Tax Rate $19.73 per $1,000 
Population 248,465 

Look up and write out the statement for one municip- 
ality. See Chronicle, State and City supplement. 

Nature of municipal assets. 
Revenue-producing assets. 
[ 104] 



Sinking funds. 
Debt ratio. 

Assessed valuations. 

Why in this country not generally up to 
actual value? 

The tax rate of one municipality should be 
read in connection with the total rate including 
the county and state rate. A rate may be 
high, not only because of a low assessment 
but because the municipality is making im- 
provements out of taxes instead of issuing 
bonds, or it may be reducing its debt by meet- 
ing the maturity of bonds without refunding. 
Lyon, "Principles of Taxation," 92-93. 

Tax rate. 

Its relations to assessed valuation. 

Debt limitations. 

Undoubtedly the existence of an absolute 
tax limit adversely and seriously affects the 
credit of municipalities which are so limited. 
The Ontario situation in which the munici- 
pality may not create further debt if the tax 
rate exceeds a limited amount is a debt rather 
than a tax limitation. 

Look up and write out the debt limitation 
for your own state. 



[105] 



TOPIC VIII 

Term of Municipal Bonds; Sinking Fund vs. 

Serial Maturity; Savings Bank Tests for 

Municipal Credit 

Chamberlain, 230, Sec. 667; 213-220. 
Raymond, 1 42-1 51. 

Term of municipal bonds: 

Massachusetts method of limiting the 
term by statutory requirement setting out 
the term permitted in accordance with the 
probable life of the improvement for which 
issued. 

Canadian requirement of engineers' cer- 
tificate setting forth the probable life of the 
improvement. The by-law authorizing the 
bonds must limit their term accordingly. 

Serial maturity vs. sinking fund. 

The uncertain value, as shown by experi- 
ence, of the municipal sinking fund. 

If available, the special report of the New 
Hampshire Tax Commission for 191 6 on Mu- 
nicipal Finances makes a very clear statement of 
the difficulties of the municipal sinking fund. 

[106] 



The conditions stated are probably representa- 
tive rather than peculiar. 

General reference may be made also to the 
reports of the New Jersey Commission for the 
Survey of Municipal Financing which may be 
available in the bond houses. 

Savings bank tests for municipal credit. 

Look up the tests for municipal credit applied 
by the savings bank laws of New York, Massa- 
chusetts, and Connecticut. Keep in mind that 
these represent very severe tests, and see the 
reference to these tests under Topic XXV. 

Select five municipalities, the population of 
which is up to the requirements of the savings 
bank investment law of New York, Massa- 
chusetts, or Connecticut, and apply the tests 
of one of those laws to see if the bonds of the 
municipalities are legal savings bank invest- 
ments for that state. If any of them are not 
indicate what test bars them out. 



[107] 



TOPIC IX 

Authorization, Issuance, Sale, and Validity 
of Municipal Bonds 

Chamberlain, 225-242. 

Authorization of Municipal Bonds. 

State constitutional limitations and au- 
thority under legislative act, authorizing and 
prescribing methods of issuance. 

Vote of electors sometimes required. 

Vote of municipal administrative body 
(as city council) sometimes sufficient. 

Municipality selling bonds. 

There follows a form of request for informa- 
tion about a proposed issue of bonds by a mu- 
nicipality sent by a bond house to a municipal- 
ity. 

MUNICIPAL BOND STATEMENT 

OF 

BROWN, JONES & CO. 

Amount to be sold Per cent ? 

Purpose of issue 

Date and hour of sale Sealed bids or auction ? 

[108] 



Bonds to be dated 191 

To mature 



Optional? 

Principal where payable? 

Interest payable when ? where ? 

Law issued under 

Denomination ? , 

Are bonds tax exempt ? where ? 

May bonds be registered as to principal? interest?. . 

Any deposits required ? 

Assessed valuation, real and personal property, for 

191 $ 

True value (estimated) taxable property . . . . $ 

Total bonded debt, including this issue $ 

Floating debt . $ 

Amount of bonds outstanding (included in above) issued 

for Water Works, owned by City $ 

Sinking fund held against Water Bonds $ 

Sinking fund held against other bonds $ 

Population State or U. S. Census, 191 

Population estimated 191 

Private Sale — sometimes not permitted by 
legislative act. 

Public Sale. 

Advertising for bids. 

All or none bidders. 

Awarding the bonds. 

Bid price must be par or better, European 
practice not so. 

There is perhaps the beginning of a willing- 
ness with us to permit municipal bonds to be 

[109] 



sold at a discount. Minnesota, for example, 
permits it under some circumstances. 
See Fischer, "Selling Over the Counter" — In- 
vestment Bankers Association Annual Re- 
port, 191 3. 

There is an interesting Dutch method by 
which all bonds are allotted at the lowest bid 
accepted. Those who bid higher than the 
lowest bid are given full allotments at the 
lowest price. This seems equitable. All get 
their bonds at one price and one purchaser 
has no advantage over another in re-selling. 

Reasons for holding municipal bonds invalid: 

1. The legislative act relied on held uncon- 
stitutional. 

2. Exceeding limit of indebtedness. 

3. Lack of statutory authority. 

4. Statutory requirements for proceedings 
not complied with. 

Validating Acts. (It should be said in con- 
nection with validating acts that they cannot 
override constitutional provisions, and that a 
complicated procedure leading to delays in 
operation may make them something of a nui- 
sance.) 

Georgia has a validating act. 
Opinion of Attorneys General as to legality, 
Texas and Oklahoma. 

[no J 



Certification of bonds for genuineness of 
signature and as within the limits authorized. 

Done by certain trust companies. 

By state of Massachusetts for municipal 
notes. 



[in] 



TOPIC X 

General Considerations of Municipal Credit; 

Municipal Bonds and Taxation; Special 

Markets for Municipals; Municipal 

Repudiation 

Chamberlain, 173-179, 237. 

Raymond, 152-153, 159. 

Chamberlain, Sections 699, 704, 705, 707. 

Wrightington & Rollins, "Tax Exempt and Tax- 
able Investment Securities." 
(At the moment of writing out of print, but 

may be republished by Financial Publishing 

Co., Boston.) 

Municipal repudiation. 
Chamberlain, 173, 179. 
Raymond, 152-153. 

Examples. 

Causes. 

Results in credit. 

General considerations of municipal credit. 

Chamberlain, 237. 
Raymond, 152-153, 159. 

[112] 



Character of population. 

Record of good faith. 

Location, prosperity, and probable future 
growth of the community. 

Municipal bonds and taxation. 

Chamberlain, Sections 699, 704, 705, 707. 

Exemption from state and local taxation. 

Exemption from Federal income tax. 

Income from municipal bonds is not subject 
to either the normal tax or the surtax, and does 
not have to be reported. 

Reasons for exemption from Federal income 
tax. 

Federal government has no constitutional 
right to tax an agency of a state government. 

Are the municipal bonds of your own state 
subject to taxation in the state? Look up in 
State and City supplement in the "Chronicle. " 

Special markets for municipals: 
Savings banks. 
Trustees. 

Postal savings funds. 
Rich investors (to avoid taxation). 



[113] 



TOPIC XI 

Tax Districts; the Problems of Overlapping 
Debt Areas; Special Assessment Bonds 

Chamberlain, pages 243-251, 205-211. 
Chamberlain, sections 483, 722-726, 532, 576. 

Overlapping government areas and the prob- 
lems of total debt against given values. 

Chamberlain, 205-211. 

Tax Districts. 

Chamberlain, 243-251. 

As a means of escaping debt limitations. 

A special report of the New Hampshire Tax 
Commission in 1916 on Municipal Finances 
presents a good discussion of the general topic. 

Practice work — Take a given municipal area, 
as a county, and compute the total debt per- 
centage of the values, taking all the debt 
for which the values are liable. Allot to 
the area a part of the state debt in the pro- 
portion of the state valuation to the valua- 
tion of the area taken. State and City sup- 
plement of the "Chronicle" will furnish the 
material. 

[114I 



Special assessment bonds. 
Chamberlain, Sections 483, 722-726, 532, 575. 

Reasons for issuing special assessment 
bonds. True special assessment bonds — i. e.> 
which have a claim only against the abutting 
property. 

Municipal special assessment bonds, u e., 
bonds which are a general obligation of the 
municipality, but for which the municipality 
holds the abutting property liable. 

Special assessment bonds are not taxed 
under the Federal Income Tax. 

Practice work — Examine the debt of a muni- 
cipality of 250,000 inhabitants or over and 
make out a list of the various purposes for 
which the municipality has incurred bonded 
debt. State and City Supplement,"Chronicle." 



[»5l 



TOPIC XII 
Buying and Selling Securities 

"You and Your Broker," 35-58. 

Buying a bond: 

The order — to salesman or by mail or in 
person over the counter. 

Where delivered — at bank — but may even 
be brought around personally by salesman. 

How delivered : 

Shipped by express, or 

Registered mail insured. 

Express company an insurer. 

How insured if mailed. 

Draft attached: 

(Just like the shipment of any goods ex- 
cept that here the goods themselves are at- 
tached to the draft instead of a bill of lading 
which it is necessary to have in order to get 
delivery of the goods.) 

Computation of prices : 

Sold at a price and accrued interest, 

[116] 



Sale and transfer of bonds. 

Registered. 

Coupon. 

Business of safe deposit company. 

Inheritance tax — notice to comptroller, 
but New York case, Appellate Division, has 
said that securities in safe deposit box are 
not in custody of safe deposit company. The 
practice of giving notice nevertheless continues. 



[«7l 



TOPIC XIII 
Real Estate Mortgages as Investments 

Chamberlain^ 46-61. 

Though the bond man himself is not dealing 
in real estate mortgages, they constitute a com- 
petitive investment, and he should know some- 
thing about them. 

The real estate mortgage as an investment. 

Our land capital financed by borrowing just 
the same as any other capital. 

Nature of a mortgage as security. 

Rights under — reviewed by reading ordinary 
form of mortgage. 
Gerstenberg, " Materials of Corporation Finance," 

176. 

Form of Mortgage : 

Consideration. 

Description (location). 

Granting clause. 

Defeasance clause. 

[118] 



Right of sale on default (foreclosure). 
Covenant to keep insured. 

Principal due on default in interest. 

Further assurance — to execute any further 
instruments, etc. 

Right of entry on default, and to apply in- 
come to payment of debt. 

Right to receive on default. 

Right of mortgagee to pay taxes and cov- 
enant of mortgagor to repay. (Usual provision 
in New York City mortgages that the mortgage 
becomes due on any change in the tax law af- 
fecting it.) 

Equities — Savings bank and trustee require- 
ments for State and City Supplement, "Chroni- 
cle." 



[119] 



TOPIC XIV 
Investing in City Mortgages 

Practical Real Estate Methods. Read the follow- 
ing chapters: 

Mortgage loans on real estate. 

Margins on mortgage loans. 

Building loans. 

The city mortgage: 

Business building. 

Dwelling. 

Vacant lots. 

Appraisals: 

Correct appraisals based on actual selling 

price, not on capitalized earnings. 

Who makes — reliability of. 

Buyer selects own appraiser or insists on 
one he knows. 

What proportion of value in land and in 
building makes the best basis for security? 

Rates of income. 

[120] 



Application for loan. 

Putting through transaction. 

Investigation of physical security dis- 
cussed in previous topic. 

Personal obligor. 

(Generally not much regarded in New 
York but may become important.) 

Title: 

Title guarantees in New York and some 
other places. 

Fees for New York County first examina- 
tion $65, plus #5 for each $1,000, up to 
$40,000. Then $2.50 a $1,000. 

Reissue title insurance, New York County : 
$32.50, plus $5 a $1,000, plus $2.50 per 
$1,000 for over $40,000. 

Of course these figures quoted by a New 
York company for New York County on a 
certain date are given merely as an approximate 
indication of this business. 

Disbursements: 

Title search or insurance. 

Appraisal fee. 

Survey fee. 

Recording tax. 

Drawing up documents. 

Brokers fee 1% and up. 

[121] 



Lending on new mortgage: 

Purchase money. 

New loan. 

Builder's mortgage. 

(Advanced as building goes up.) 
Insurance: 
Taxes and tax liens. 

Taking mortgage by assignment. (Cove- 
nant that there is due and owing the stated 
sum.) 

Form of Assignment. 

Sale of property subject to mortgage. 
(Does not release original obligor but puts 
him in the position of guarantor, but mort- 
gagee may, if he wishes, release original 
obligor. 

Work of the mortgage broker: 

How he finds borrowers. 

How he finds lenders. 

Who does the work: 

Brokers. 

Mortgage companies. 

The real estate and trust fund law 
firms. 

The amortized mortgage running for longer 
time. 

[122I 



Mortgage bonds — collateral mortgages. 

Mortgage bonds — on single buildings. 

The guaranteed mortgage, f % for guarantee 
and care. 

A form follows, showing elements to be 
considered in making a mortgage investment. 

APPLICATION FOR LOAN ON BUSINESS PROPERTY 

Robert Jones applies to the City Savings Bank for a 
loan secured by first mortgage on property described be- 
low: 

First mortgage — $42,000 at 5% for three years 

Obligation — Robert Jones 

Location — Worcesterfield, N. Y., 107 Main Street 

Dimensions of lot — 62.3' x 121 feet 

Dimensions of building — 62.3' x 85 (about) — Stories — 
one story; Walls for three stories 

Condition of building — Good. 

Building materials — Brick 

Present use — Stores — all rented. 

Annual rent — $5,000. 

Owner's value $65,000 

Assessed value, 1916, Land $50,000 

Building 9,000 

$59>°°° 



[ 123 ] 



TOPIC XV 

Farm Mortgages and Land Bank Securities 

Robins, "The Farm Mortgage Handbook." 
The Federal Farm Loan Act, 64th Congress, 
1916. 

The Federal Government had some interest- 
ing material prepared while farm loan legis- 
lation was under consideration, especially: 
Thompson, C. W., "Factors Affecting Interest 

Rates and Other Charges on Short Time 

Farm Loans." 
Thompson, C. W., "Costs and Sources of Farm 

Mortgage Loans in the United States." 

Farm Mortgages. 

Rural credits legislation, federal and state. 

Rates. 

Who invest in: 

Insurance companies. 

Savings banks (Vermont). 

Farm mortgage association. 

Farm mortgage bankers and their meth- 
ods. 

[124] 



The following chapter headings from Mr. 
Robins's book indicate the scope of the subject. 
This little book may very profitably be read 
through. It is ex-parte, giving a view of the 
subject by a dealer in the security, but an ex- 
cellent statement. 

Rural credits. 

The negotiation of farm mortgages. 

The marketing of farm mortgages. 

Investors in farm mortgages and the record 
of the farm mortgage as an investment. 

The qualities of a farm mortgage as an invest- 
ment. 

Essential differences between mortgages on 
farms and mortgages on urban real estate. 



i"5i 



SECTION II 

INVESTING IN CORPORATION 
SECURITIES 

For information about corporations and 

their securities, constant reference should be 

made to such reference books as : 

Poors Manuals. 

Corporation Service Manual. 

Moody s Analyses. 

Manual of Statistics. 

Commercial & Financial Chronicle, Weekly and 
Special Supplements. 
For quotations: 

Quotation Supplement, Commercial and 
Financial Chronicle. 

Quotation record in the weekly Com- 
mercial and Financial Chronicle. 



[127] 



TOPIC XVI 

General Investment Considerations of Cor- 
poration Securities 

Chamberlain, 69-114. 

Nature of business : 

Is it a fixed capital or non-fixed capital 
business; i. e., is the income from the ser- 
vice or from the product the larger propor- 
tion of the return for the use of the fixed 
capital? If the use of fixed capital plays a 
relatively large part in the cost of service or 
product probably the investment is on a 
sounder basis, other things being equal, than 
if fixed capital plays a relatively small part. 
Compare a railroad or hydraulic electrical 
company with a mercantile concern dealing 
in circulating capital, or a mail order house 
which has expended funds in building up 
good will. 

Select a railroad, an electric lighting com- 
pany, a manufacturing concern, and deter- 
mine the percentage of gross earnings avail- 
able for distribution to the various classes of 
securities. 

[128] 



The nature of the business risk: 

Are earnings subject to wide fluctuations? 

Review the discussion of fluctuations in 
gross due to the nature of the business pre- 
sented in the Corporation Finance course 
under Capitalization in Relation to Earnings. 
Lyon I, 50. 

Stability from the nature of the business: L e., 
is it dependent on fashion, etc. ? 

Character of Management, etc. 

Evidence of Ability, Integrity. 

Chamberlain, 254. 

Location of Business: 

Is the location advantageous for the busi- 
ness to be carried on — location of manu- 
facturing plant with reference to raw ma- 
terials and market — location of railway or 
street railway with reference to sources of 
traffic ? 
Chamberlain, 320-327. 

The Investment Contract: 

Claim it gives on income. 

Claim it gives on assets. 

Where would the investment stand in 

the event of insolvency and a sale of assets? 

(These two headings of course cover a very 

large part of the whole subject of Corporation 

Finance and Investment in Corporation Se- 

[129] 



curities. By way of review of topic, Heft, 
"Holders of Railroad Bonds and Notes," pp. 
227-334, could be read.) 

Effect of the Investment Contract as shown 
in yield of different securities of the same cor- 
poration. 

This variation of yield in accordance with 
the investment contract was suggested in 
the earlier Topic No. IX. Since, however, 
it is a large part of the basis of investment in 
corporate securities, it needs to be taken up 
again at this point. 

Work out the corresponding showing for the 
securities of several corporations, as say, the 
Union Pacific, United States Steel, Interborough 
Rapid Transit, or any that are locally more 
interesting. 



1 130] 



TOPIC XVII 
Stock as an Investment 

Chamberlain, Chap. IV, pp. 29-37. 

" Stocks and the Stock Market," annals of the 
American Academy of Political and Social 
Science, contains articles on investment in 
the stock of corporations engaged in various 
kinds of enterprises. 

Element of potential appreciation. 

Combination of anticipated profit with ex- 
pected income. A combination of specula- 
tion and investment. See definition of in- 
vestment under Topic No. I. 

Element of risk. 

Price in relation to: 
Dividends. 

Earnings available for dividends. 
Surplus. 
(For a general discussion of the relation of 
the stockholder to corporate income see Lyon y 
"Corporation Finance," Part II, 17-34, 175- 
I95-) 



Look up the price and yield of a common 
stock in each of these classes : Of a corporation 
distributing as dividends nearly all its income 
available for dividends; of a corporation not 
paying any dividends in relation to earnings 
available for dividends; of a corporation pay- 
ing in dividends only part of the earnings 
available for that purpose, and present the 
results in the following form: 



NAME OF 


PRICE OF 


PER CENT. 


PERCENT. OF 


CORPORATION 


STOCK 


PAID IN 


NET EARN- 






DIVIDENDS 


INGS CON- 
SUMED IN 
FIXED 
CHARGES 


PER CENT. EARNED 


PER CENT. OF 


INCOME RETURN 


AVAILABLE FOR 


ACCUMULATED 


TO THE PUR- 


DIVIDENDS 


SURPLUS ON THE 
STOCK 


CHASER 



Preferred stock. 

Report in the same form as above on three 
preferred stocks paying the full preferred divi- 
dends. 

Report in the same general form on a pre- 
ferred stock which is cumulative and not pay- 
ing dividends, indicating the amount of accumu- 
lated dividends. 



The value of stock in relation to the per- 
centage of net earnings consumed in fixed 
charges. 

[ 132] 



Select the stock of three corporations as 
nearly alike as you can find in other respects 
indicated in the report form just given, but 
differing in the per cent, of net consumed in 
fixed charges, and compare prices. 



[133] 



TOPIC XVIII 

Bonds as an Investment, and Further General 

Investment Principles; Assets, Their 

Maintenance, Increase, or Decrease 

Report of the Public Service Corporation 
Committee of the Investment Bankers Asso- 
ciation for 1916. 

Chamberlain, 263-291. 

General principles of the relationship of 
gross, net, and fixed charges from the viewpoint 
of investment values. 

Ratio of net to fixed charges: 

If taken alone might be larger by reason 
of skimped maintenance and not permanently 
maintainable. 

Ratio of gross to fixed charges: 

If taken alone a corporation having a large 
true operating ratio (z. <?., one in which the 
capital account is not being added to through 
the appearance of maintenance) might show 
a large ratio of gross to fixed charges with- 
out having a margin of safety of net earnings 
above fixed charges. 

[134] 



Combined ratios of gross and net to fixed 
charges may be used as a test of sufficient main- 
tenance and a sufficient margin of safety. 

Debt in relation to assets: 

Equities in relation to value of assets re- 
garded as sufficient margins of safety in 
assets. 

Public service corporations. 

Railroads (debt per mile). 

Manufacturing concerns. 

The mortgage (Trust Deed or other invest- 
ment contract) open or closed. If open does 
it contain sufficient safeguards to protect the 
investor's equity? 

Blanket or not: 

If not a blanket mortgage what is the 
relative importance of the property covered 
and its proportion to the whole? 

First mortgage bonds. 

Junior bonds. 

Refunding bonds. 

Underlying bonds. 

What could happen on default and in fore- 
closure ? 

Possible prior liens of receiver's certificates. 
Other possible prior claims. 

[i35l 



Hefty "Holders of Railroad Bonds and Notes," 

227-234. 

Apply the tests of the ratios of gross and net 
to fixed charges to two railroads, two public 
utilities, and two manufacturing concerns. 

Importance of maintenance account. 

A determination of the proper per cent, of 
earnings on investment for adequate main- 
tenance is primarily an engineer's problem. 
Very little general information is available. 
There is a considerable body of information 
for railroads and there is beginning to be in- 
formation for public utilities. But here is 
an open and good field for financial study in 
investigating the amounts actually expended 
in maintenance for different classes of enter- 
prises, and in tracing the result in the show- 
ing for the properties to see whether an in- 
creasing cost of operation indicates a de- 
creasingly efficient plant. It is to be hoped 
that students of finance will work on these 
problems and that we shall have a growing 
body of information. The discussions under 
this topic consider only general principles. 

Maintenance account: 

Are assets maintained through this ac- 
count ? 

Are assets decreasing because of insuffi- 
ciency of this account (milking the property) ? 

Are assets increasing through an excess 

[136] 



maintenance account (fattening the prop- 
erty) ? 

Take two railroads and work out the per 
cent, of gross expended in maintenance back 
for a period of five or more years. 

Surplus account: 

Are assets from which future earnings are 
to be made being increased through a sur- 
plus account? 



[137] 



TOPIC XIX 

Railroad Securities — Investment Consider- 
ations 

Chamberlain, 252-262. 

Chamberlain, 263-292. 'Previously assigned un- 

^ der topic XVII.) 

Chamberlain, 292-313. 

Moody, "How to Analyze Railroad Reports, 
4th Edition/'' 1916. New York, Moody's 
Investors Service. 

Brinton, Willard G., Chapter XV on "Cor- 
poration Financial Reports in Graphic Meth- 
ods for Presenting Facts," New York, 
1 91 4. Engineering Magazine contains some 
interesting comment on analyses of financial 
reports. 

Reducing statistics to mileage basis for pur- 
pose of comparison. 
Moody, "How to Analyze Railroad Reports." 

Debt per mile — total and for each lien. 
Income per mile. 
Tests for efficiency of operation. 
[138] 



Combination of: 

Efficiency of plant. 

Efficiency of management. 
Efficiency of plant : 

Track — single or multiple. 

Curvature. 

Gradient. 
Territory served: 

Density of traffic statistics. 
Character of traffic: 

Low grade or high grade freight. 

Diversification of traffic. 
Efficiency of operation: 

Ratio of cost of conducting operations. 

Ten miles per train mile. 

Property covered by lien (relative import- 
ance to system) : 

Main line track. 

Terminal entrance. 

Bridges. 

Branch lines. 

EQUIPMENT BONDS 

Chamberlain, 192-214. 

Character of equipment on which bonds are 
secured. 

[ 139] 



Term and amortization — standard — i. e., equal 
serial not running for more than ten years. 

Amount of equity provided by first payment. 

Report on the terms of an equipment issue. 
Look up in the manuals a road which has an 
equipment issue outstanding and from the 
probable date of its issuance look up its terms 
in the Chronicle by going back to the number 
of the Chronicle of that date. 

TERMINAL BONDS 

Chamberlain, 93. 

Lyon, "Corporation Finance/' Part I, 140-143. 

How many and what railroads use the ter- 
minal? 

Operating agreement. 

Providing for the capital charge of terminal 
through an operating agreement, and not be- 
coming directly joint obligor on the bonds, 
makes it unnecessary to show the cost of the 
terminal as a liability. This practice increases 
the operating cost but decreases the capital 
charge on which to show earnings. 

Look up the operating agreement and terms 
of some union terminal. 



[140] 



TOPIC XX 

Investment Problems Involved in the Holding 
Company 

Lyon, "Corporation Finance/' Part II, 196-208. 
(This is a review of an assignment in Cor- 
poration Finance Course.) 

and 
Classes of Public Utilities. Public Service 
Commissions and Investment. 

Securities of a holding company, and the 
value of "other income" (i. e., income derived 
from the ownership of the securities of other 
corporations) as earnings available for charges 
or dividends. 

Collateral bonds, or holding company 
securities. 

Pledge of stock and agreement not to in- 
crease the debt of the subsidiary. If such an 
agreement exists the holding company bonds 
have the effect of a fixed claim junior to 
the bonds of the subsidiary on the tangible 
assets from which the gross income is de- 
rived. 

1 hi] 



Percentage of gross of subsidiaries con- 
sumed in charge of subsidiaries before earn- 
ings of subsidiaries are available to pay 
charges of holding company. 

Take an example of a holding company, for 
which the information is available, and work 
out the per cent, of total gross and net of 
subsidiaries consumed in fixed charges of sub- 
sidiaries and the per cent, consumed in the 
fixed charges of the holding company. 

Bonds of subsidiaries: 

Investment problem is the same generally 
as for a separate corporation. 

But possibility of building up some sub- 
sidiaries at the expense of others and squeez- 
ing the bond holder of a particular subsi- 
diary. 

Securities of a lessor corporation: 

Power of receiver to cut off the lease. 

Is the lease under such conditions for a 
long enough term to remove the desirability 
of lessee milking assets of lessor? 

Direct and assumed obligations. 

Guaranteed obligations. 

Guaranteed by endorsement and otherwise. 

PUBLIC SERVICE CORPORATIONS 

Classes of public utility corporations: 
Street railways. 

[142] 



Urban. 

Interurban. 

Electric. 

Light. 

Power. 

Hydraulic Electrical. 
Gas. 

Natural. 

Artificial. 
Telephone. 
Telegraph. 
Water. 

PUBLIC SERVICE COMMISSIONS AND INVESTMENT 

Policy as to allowance of rates for income 
return, valuation of property, etc. 

Policy as to competition (Certificate of pub- 
lic convenience and necessity). 

Policy as to regulation of capitalization. 

The natural monopoly idea applied to public 
service companies. 



[143] 



TOPIC XXI 

Investment Considerations of Street Railway, 
Gas, Electric Light, and Power Companies 

Chamberlain 320-349, 357-365. 

Interurban. 

" Electric Railway Bonds as Investments, 
Bonds as Investment Securities. " Annals Amer- 
ican Academy of Political and Social Science. 

Street railway securities: 

Urban. 

Interurban. 

Competition with steam railways. 

Union of steam and electric railways. 

Gas company securities: 

Relatively long history. 

Competition with oil and electric light. 

Electric light securities. 

Power company securities. 

Climatic conditions — rainfall : 

Minimum power. 

[144] 



Minimum power for ten months', etc., 
period. 

Drainage area. 

Head. 

Cost per horsepower. 

Market for power. 

Amount of power marketable. 

Price per horsepower. 

Compare the quotations on the securities of 
street railway, gas, electric light, and power 
companies. Select for comparison one com- 
pany of each class, and select companies which 
as near as may be have about the same earn- 
ings and the same proportionate fixed charges. 



[ HS i 



TOPIC XXII 

Investment Considerations of Street Railway, 
Gas, Electric Light, and Power Companies 

Chamberlain, 314-319, 375~3 8 3> 384"4°4- 

TELEGRAPH AND TELEPHONE SECURITIES 

Telegraph companies. 

Telephone companies. 

The "Bell" companies; The American 
Telegraph and Telephone Company and its 
securities, and the securities of subsidiaries. 
The "Independent" companies. 

Importance of a telephone "area." 
Toll service. 

STEAMSHIP SECURITIES 

Chamberlain, 314-319. 

Blanket mortgage steamship bonds. 
Great Lakes — single boat bonds. 
Importance of insurance. 

TIMBERLAND SECURITIES 

Chamberlain, 375-383. 

[146] 



Form — Ten-year series. 

Sinking fund : 

Effect of period of poor demand for 
timber on the bonds, considering the ex- 
pectation of meeting the maturity from the 
proceeds of the annual cut. 

Estimate of values. 

The work of the "timber cruiser." 

The fire hazard. 

Southern timberland. 

Pacific Coast timberland. 

RECLAMATION SECURITIES 

Chamberlain, 384-404. 

"Reports, Committee of Investment Bankers 
Association in Annual Reports of Associa- 
tion." 

Irrigation District Bonds. 

Private Project and Carey Act Bonds. 

Drainage and Levee Bonds. 



1 147] 



TOPIC XXIII 

Industrial Securities 

The comparative average meagreness of in- 
dustrial reports, and the wider variety of con- 
siderations make the industrial a vaguer topic 
for study than railroads. Since the amount of 
discussion in print of the general problems of 
investment in industrials is meagre it is not 
possible to present an extensive outline for 
study of that topic. 

Collver, "How to Analyze Industrial Securi- 
ties/' 
Dewing, "Corporate Promotions and Reorgani- 
zations." (This is, for industrials, somewhat 
in the nature of a companion book to Dag- 
gett on "Railroad Reorganizations/') 

Industrial Reports. 

Collver, 1-8. 

Industrials compared with railroads. 
Collver, 9-12. 

What is included in the term Industrials: 
Collver y 13-16. 

[148] 



Manufacturing. 
Merchandising. 
Not mining. 
Large and small scale business. 
C ' ollver , 17-20. 

Business considerations: 

Fluctuation in demand for product. 

Diversification of product. 

Integration of product, i. e., from raw ma- 
terial to user of final product. 

Standardization of product. 

Advantages of location. 

Competition. 

Collver, 21-45. 

Questions of management. 
C ollver, 47-68. 

Financial connections. 

Interpreting the balance sheet of an indus- 
trial: 

Lack of uniformity. 

Certificate of public accountants. 

Good will. 

Patents, trademarks, brands, rights. 

Current assets. 

[149] 



Current liabilities. * 

Surplus. 
Collver, 69-164. 

Interpreting the income account of an in- 
dustrial. 

The income account and importance of con- 
sistency in form. 

New enterprises. 
C ollver, 189-204. 

Elements of risk and safety due to the nature 
of a particular kind of business. 

Elements of risk due to competitive nature 
of the business. 

Value of fixed assets. 

Value of quick assets. 

Stipulations for maintaining quick assets. 



[ISO] 



TOPIC XXIV 

Mathematics of Investment 

Chamberlain, 405-425. 

Sprague (Perrine), "Accountancy of Invest- 
ment/' 

The life tenant and the remainderman. 

Income to the life tenant, principal to the 
remainderman. 

Principal and income. 

What is principal and what income? 

Stock dividends. 

A very good discussion of the stock dividend 
from this standpoint sufficient for the purposes 
of the course may be found in Montgomery, 
"Income Tax Procedure," 87-89. The bond 
man should, if possible, determine the situation 
in his own state. This, however, is difficult, 
as there is no general treatise to which he can 
be referred. 

The student should have a clear understand- 
ing of the following subjects, and he might 

[151] 



well be able to work out the mathematical for- 
mulae. He should understand their bearing 
on the matter of basis or true income return. 

Simple and compound interest. 

The value or amount of a dollar at a given 
rate of interest for a given number of interest 
periods. 

The amount of compound interest for a 
number of interest periods at a given rate of 
interest. 

The present worth of a dollar at a given rate 
of interest for a given number of interest 
periods. 

Simple and compound discount. 

Annuities. 

Amount of annuity. 

Present worth of an annuity. 

Rent of an annuity. 



[15*] 



TOPIC XXV 

A. Investments of Trustees 

B. Investments of Savings Banks 

(See State and City Supplement of the Com- 
mercial & Financial Chronicle for laws gov- 
erning trustee investment in many states.) 
Loring, "Trustees Handbook/' 109-142. 

Though this little handbook is now not up 
to the latest statutes and decisions, it concisely 
and simply states the principles involved. The 
pages cited cover the investments and disposi- 
tion of special dividends. A bond man would 
find it well worth while to read this entire little 
volume of 193 pages. 

INVESTMENTS OF TRUSTEES 

Classes of trustees : 

Trustees for individuals under wills or 
other documents creating trusts. 

Guardians. 

Trustees for educational and charitable 
institutions. 

The nature of the investments of a trustee 

[153] 



may be determined by the instrument creat- 
ing the trust. 
Loring, 112. 

Legal investments for trustees in the absence 
of express instructions in the document creat- 
ing the trust. 

Loring 9 1137115- 

State & City Supplement, "Chronicle," for 
various states. 

Classes of investments disapproved. 
Loringy 115. 

Duties of the trustee in the management of 
the investments: Duty to keep the fund in- 
vested. 
Loring, 109. 

Principal and income. 

Life tenant and remainderman. 
Loring, 1 21-142. 

Dividends : 

Current. 

Extra. 

Stock. 

Loring, 126-135. 

Bonds bought at a premium. 
Loringy 136. 

Bonds bought at a discount. 

[154] 



Make a written report on what constitute 
legal trustee investments in your own state. 

INVESTMENTS OF SAVINGS BANKS 

(See State & City Supplement of the Com- 
mercial & Financial Chronicle for laws gov- 
erning the investment of savings bank funds 
for the several important savings bank juris- 
dictions.) 

The savings bank as developed in New York 
and in the New England States may require a 
word of explanation for those who are not 
familiar with its purposes. These savings 
banks are mutual institutions, not for profit. 
The whole fund, deposits and surplus, is a 
trust fund for depositors. The law governing 
the investment of the fund has been a matter 
of historical development, and should be con- 
sidered in that light, and not as a group of 
scientific principles for tests of credit, by which 
all securities excluded are necessarily inferior 
to those included. For example, the New York 
law includes as a legal investment bonds of the 
New Jersey cities of Bayonne, Hoboken, and 
Jersey City, but excludes the bonds of Hudson 
County in which all these places are located. 
It may be considered generally, however, that 
those bonds which are included as legal savings 
bank investments are worthy of high credit. 

The Mutual Savings Bank. 
Limitations on deposits. 
Limitations on withdrawals. 

[155] 



A commercial banlc, national or state, with 
capital stock, engaging in business for profit 
may be permitted to assume greater risks for 
the sake of profit because the risk falls pri- 
marily on the stockholders who are making 
the profit. 

Legal restrictions on savings bank invest- 
ment. 

The law of New York (or any other juris- 
diction of more immediate interest to the bond 
man) on savings bank investment. 

(Make a comparison between two savings 
bank investment laws, showing any differ- 
ences in the severity of the tests applied.) 



[156] 



TOPIC XXVI 
Investments of Insurance Companies 

A bond man should be familiar with the law 
governing the investment of the funds of insur- 
ance companies in his own state. 
Zartman, "The Investments of Life Insurance 

Companies." 
Wolfe, "The Examination of Insurance Com- 
panies." 

These books contain much more information 
about insurance matters than it is necessary 
for a bond man with a general clientele to know. 
It is suggested, however, that a bond man hav- 
ing to deal with insurance companies may very 
profitably read them throughout. 

Classes of insurance companies: 

Fire. 

Life, fraternal orders. 

Fidelity. 

Casualty. 

Plate glass. 
Funds to be invested. 
[157 J 



Capital. 

Premiums. 

Character of investments. 

For life insurance companies see report of 
Robert Lynn Cox, as counsel to the Associa- 
tion of Life Insurance Presidents, printed in 
part in Robins, "The Farm Mortgage Hand- 
book." 

Zartnian, p. 9. 

The bond man studying this topic should 
have access to the report of his own state insur- 
ance department. 

Assets of an Insurance Company: 

Cash. 

Deferred and outstanding premiums. 

Accrued interest. 

Premium notes. 

Policy loans. 

Mortgage loans. 

City. 

Farm. 
Real estate (usually limited to real estate 
in which the company conducts its business). 

Collateral loans. 

United States bonds. 

Foreign public bonds. 

[158] 



State bonds. 

County and municipal bonds 
Railroad bonds. 
Public utility bonds. 
Miscellaneous bonds. 
Railroad stocks. 
Public utility stock. 
Miscellaneous stock. 

(Take the investments of an insurance com- 
pany and determine the percentage in each of 
these items.) 

Requirements for the deposit of securities 
to protect the business done in the jurisdiction. 



[159] 



TOPIC XXVII 

The Investments of National Banks, State 
Banks, and Trust Companies 

The commercial loan aspect of commercial 
bank investment, which is the principal part of 
such investment, is not, of course, of primary 
importance to the bond man. It is important, 
however, that the man who comes in contact 
with the commercial banks to have a general 
understanding of this matter so that he may 
understand the commercial banker's problem 
and be able to meet him intelligently. And 
for any bond man this understanding should be 
a part of his general financial knowledge. So 
here are presented some of the considerations 
of investment in commercial paper. This 
topic opens the whole problem of commercial 
banking. Of course it is necessary to limit 
the consideration of it very closely. Read any 
work on banking that treats of bank credits. 

Special importance that assets be liquid. 
(Investment test, "convertibility. ") 

Commercial paper. 

[160] 



Bills or notes based on a commercial trans- 
action representing goods in the course of 
consumption (circulating capital) are a liquid 
asset by reason of their frequent maturity 
and the possibility of rediscount. 

General credit considerations. 

The work of the note broker. 

Liquidity through rediscounting. 

Law authorizing National Bank investments. 

May not make investments in, or secured 
by, real estate, except for premises on which 
to transact its own business and as security 
for or taken for antecedent debts (Nat. 
Bank Act, Sec. 513). 

May not loan more than one-tenth of 
capital and unimpaired surplus funds to any 
one borrower. 

(National Bank Act, Section 5200.) 

(The bond man should look up the law regu- 
lating the investments of state banks and trust 
companies in his own state.) 

Investments of Postal Savings Banks. 

Investments of banks in bonds as secondary 
reserve. 

Secondary reserve — meaning of term. 

Character of bonds — marketability — active 
listed. 



[161 ] 



TOPIC XXVIII 

General Principles of Investment; Fraudulent 
and Investment Schemes 

GENERAL PRINCIPLES OF INVESTMENT 

Distribution of risk: 

Limiting proportion of capital invested in 
any one investment. 

Limiting the proportion of capital invested 
in any one kind of enterprise. 

Distributing investments over more than 
one geographical area. 

Selecting investments having varied dates 
of maturity. 

(Analyze some list of investment holdings 
from these viewpoints.) 

FRAUDULENT INVESTMENT SCHEMES 

Types of offerings which should arouse sus- 
picion. 

Gerstenberg y "Materials of Corporation Fi- 
nance/' 377~4°3- 

Warnings in an investment offering: 
The promise of exceptional returns. 
[ 162 ] 



Dwelling on the large profits made in other 
enterprises. 

Work of the post office department in sup- 
pressing fraud. 

"Blue Sky Laws." 

Contrasting types of legislation as acts of 
various states of the United States which 
interpose an official supervision of investment 
offerings, compared with the requirements of 
such legislation as the English Prospectus Act 
which seeks the same result by requiring a 
publication of facts. 



[163] 



TOPIC XXIX 

Investments and Taxation 

Lyon, "Principles of Taxation" (Report to 
Taxation Committee, Investment Bankers 
Association). 

A bond man should know precisely the 
law of his own state covering the taxation 
of all classes of investments. He should 
also be familiar with the Federal Income Tax 
law and especially with its treatment of 
income from state and municipal bonds and 
from dividends. 
Montgomery, "Income Tax Procedure." 

State and local taxation. 
The general property tax. 
Lyon, "Taxation/ 5 31-58. 

The classified property tax. 
Lyon, "Taxation," 73-89. (Especially foot- 
notes.) 

The income tax as a form of state and local 
taxation. 

Wisconsin and Massachusetts Income 
Tax Laws. 

[164] 



Lyon, "Taxation," 15 (though the objections 
to an income tax seem valid, perhaps they 
are given too much weight as compared with 
the advantages). 

Inheritance taxes as affecting investments. 
Lyon, "Taxation," 108-112. 

Investments which are exempt from state 
and local taxes. 

Usual exemption by a state of its own state 
and municipal bonds from state and local 
taxation. 

The Federal Income and Inheritance Tax: 

Tax covenant bonds, i. <?., bonds on which 
the corporation which issued them cove- 
nanted to pay free from any tax which the 
corporation might be required to withhold. 

The exemption of income from state and 
municipal securities — on the principle that 
it is not constitutional for the Federal Govern- 
ment or a state government agency to tax 
the securities of each other. 

The treatment of dividends in the Federal 
Income Tax law and why. 



[165] 



TOPIC XXX 

Economic Conditions and Investment 

Chamberlain, 455-512. 

"America's Changing Investment Market." 
Annals of the American Academy of Politi- 
cal and Social Science. 

Statistical figures: 
Building statistics. 
Bank statistics: 

Clearings. 

Reserves. 1 

Money rates. 

Business failures. 

Immigration and emigration. 

Imports and exports, balance of trade and 
gold movements. 

Gold production and the quantity theory of 
money. 

Commodity prices. 

Crop conditions. 

[166] 



Corporation earnings. 

The relation of security prices to interest rates. 

Interest rates an index of the demand and 
supply of capital, depending on general credit 
conditions. 



[167] 



BOOKS REFERRED TO IN OUTLINE OF COURSE 
IN INVESTMENTS 

Adams — Science of Finance. By H. C. Adams, New 
York, H. C. Holt & Co. 1899, $3.00. 

Bastable — Public Finance. By C. F. Bastable, New 
York, MacMillan & Co. 1903. $3.50. 

Chamberlain — The Principles of Bond Investment. By 
Lawrence Chamberlain. 191 1. New York. Henry 
Holt & Company. 

.Collver — How to Analyze Industrial Securities. By 
Clinton Collver. New York, 1917, Moody's' In- 
vestors Service. $2.50. 

Dewing — Corporate Promotions and Reorganizations. By 
Arthur S. Dewing. Boston. Houghton Mifflin 
Co., $2.50. 

Gerstenberg — Materials of Corporation Finance. By 
Charles W. Gerstenberg, Professor of Finance, 
New York University, School of Commerce, Ac- 
counts and Finance. New York. 191 5. Pren- 
tice Hall, pp. 1008, $5.00. 

Heft — Holders of Railroad Bonds and Notes, Their Rights 
and Remedies. By Louis Heft. New York. E. 
P. Dutton & Co. 1916. $2.00. 

Loring — A Trustee 9 s Handbook. By Augustus Peabody 
Loring. Boston. Little, Brown & Co. 1907, 
$2.50. 

Lyon — Corporation Finance. By Hastings Lyon. Com- 
plete Edition. 1916. Vols. I and II bound to- 
gether. Boston. Houghton Mifflin Co., £3.00. 

[168] 



Lyon — Principles of Taxation. By Hastings Lyon. 

Boston. Houghton Mifflin Co., 75 cents. 
Montgomery — 191 7. Income Tax Procedure. By Rob- 
ert H. Montgomery, C. P. A. New York. Ronald 

Press Co. $2.50. 

National Bank Act, as amended, Federal Reserve 

Act, as amended, and other laws relating to National 

Banks, July 1, 191 5. Washington, Superintendent 

of Documents, 25 cents. 

Postal Savings Banks Regulations for Guidance 

of Qualified Banks, etc. Includes text of act. 191 3. 

Washington. Superintendent of Documents, 5 

cents. 
Plehn — Introduction to Public Finance. By Carl C. 

Plehn. New York. The MacMillan Co., pp. 480. 

1911. $1.75. 
Raymond — American and Foreign Investment Bonds. By 

William L. Raymond. Boston. 1916. Houghton 

Mifflin Co., $3.00. 
Robins — The Farm Mortgage Handbook. By Kingman 

Nott Robins. New York. 1916. Doubleday, 

Page & Co., $1.25. 

Secrist — Bulletin of the University of Wisconsin No. 637, 
Economics and Political Science, Series Vol. 8, No. 1. 
"An Economical Analysis of Constitutional Re- 
strictions upon Public indebtedness in the United 
States." By Horace Secrist, University of Wis- 
consin. 19 1 4. 40 cents. 

Sprague — The Accountancy of Investment. By the late 
Charles E. Sprague, C. P. A. Revised by Leroy 
L. Perrine, C. P. A. Third Edition, 1914. New 
York, Ronald Press Co., $5.00. 

Stocks and the Stock Market. Annals of the 
American Academy of Political and Social Science. 
Philadelphia. 1910, $1.50. 

Thompson — Costs and Sources of Farm Mortgage Loans 
in the United States. By C. W. Thompson. Wash- 
ington. 1916. Apply Bureau of Printing. 

[169] 



Thompson — Factors Affecting Interest Rates and Other 
Charges on Short Time Loans, By C. W. Thomp- 
son. Washington. 1916. Apply Bureau of 
Printing. 

Various Authors — Bonds as Investment Securities. 
American Academy of Political and Social Science. 
1907. $1.50. 

Various Authors— Practical Real Estate Methods. Thirty 
chapters written by different authors. New York. 
1914. Doubleday, Page & Co., $2.50. 

Various Authors — You and Your Broker, Magazine of 
Wall Street. New York. 191 7. $1.00. 

Wolfe — The Examination of Insurance Companies. By 
S. Herbert Wolfe. New York. 1910. The In- 
surance Press, $3.00. 

Zartman — The Investment of Life Insurance Companies. 
By L. W. Zartman. 1906. New York. Henry 
Holt & Co., $1.50. 

The Philadelphia Commercial Museum main- 
tains a financial department open to subscribers, 
from which they may obtain financial informa- 
tion. 



[170] 




THE COTJNTBY LIFE PRESS 
GABDEN CITY, N. Y. 



